Deep Dive: Cryptocurrency bank Silvergate has lost 68% of its digital deposits. Here’s what we know about its predicament.

by | Jan 5, 2023 | Stock Market

Following the flow of high-profile collapses in the virtual-currency industry last year, Silvergate Capital Corp. on Thursday surprised investors with some startling fourth-quarter numbers two weeks early. The company’s premarket release set up a decline of as much as 49% for its stock, reversing a 27% increase a day earlier, when heavily shorted stocks in the crypto space rallied. Silvergate’s
shares are now down 85% from a year earlier.

The news came after a bruising year for the crypto industry, including the bankruptcy of FTX, the collapse of BlockFi and fraud charges against the founder of Celsius Network. Ugly numbers In its Jan. 5 press release, Silvergate cautioned that the limited set of numbers it released were unaudited and subject to change, per the normal course of preparing its fourth-quarter financial statements. The full release is scheduled for Jan. 17. Here’s a snapshot:
The bank had $3.8 billion in digital deposits as of Dec. 31, down 68% from $11.9 billion as of Sept. 30.

Brokered deposits doubled to $2.4 billion as of Dec. 31 from $1.2 billion as of Sept. 30. These are certificates of deposits gathered through brokerage firms.

Total deposits declined 53% to $6.2 billion as of Dec. 31 from $13.1 billion as of Sept. 30. Silvergate said about $150 million of its total deposits “were from customers who have filed for bankruptcy.”

In a conference call before the stock market opened, CEO Alan Lane said the bank’s customers were “moving to a risk-off position in digital trading platforms.” “Significant overleverage in the industry has led to several high-profile bankruptcies and sparked a crisis of confidence across the entire digital asset ecosystem,” Lane said, according to a transcript provided by FactSet.Borrowings balloon In addition to its increase in brokered deposits, Silvergate increased wholesale borrowings. Short-term borrowings from the Federal Home Loan Bank (FHLB) of San Francisco increased to $4.3 billion as of Dec. 31 from $700 million three months earlier. FHLB borrowings funded only 5% of $13.9 billion in total funding (deposits plus borrowings) as of Sept. 30. That is a level Marinac termed “normal,” because the current industry norm is for FHLB borrowings to provide about 5% to 6% of funding. But that ballooned to 41% of total funding as of Dec. 31. As part of its efforts to r …

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