Shares of Silvergate plummet as crypto bank warns it may go bankrupt

The shares of Silvergate Capital Corp. lost more than 40% of its value on Thursday after the company delayed its financial statements and said it is evaluating its ability to continue operating for the next 12 months as the crypto asset bank scrambles to cover tied withdrawals until the collapse of the crypto market.

Silvergate SI,
said in a filing that it expects to record further losses related to its impairment on its securities portfolio following the sale of additional debt securities to cover withdrawals.

Silvergate’s stock fell 44.5% to less than $8 a share, a level not seen since March 2020, with at least one analyst downgrading the stock.

Separately, Coinbase Global Inc. coin,
it said would stop sending payments to or receiving payments from Silvergate, “in light of recent developments and out of an abundance of caution,” the company tweeted Thursday.

Coinbase plans to enable cash transactions from institutional customers with its other banking partners, the company tweeted Thursday.

Shares of Coinbase fell nearly 8%, while shares of Signature Bank SBNY,
another financial services company that works with digital currencies fell 5.6%.

Silvergate disclosed in a filing an unaudited loss of $948.7 million in 2022 compared to a net profit of $75.5 million in 2021. It does not expect to be able to file audited results by the renewal date of March 16, the company said.

“The company is evaluating the impact of these subsequent events on its ability to continue operations during the 12 months following the publication of its financial statements,” Silvergate said.

JPMorgan analyst Steven Alexopoulos downgraded Silvergate from neutral to underweight and withdrew a price target for the company.

Silvergate realized $886 million in losses from securities sales as crypto-related deposits fell 68% to $3.8 billion in the fourth quarter, the company announced in January.

“With the company selling additional securities (beyond what was forecast) at a loss in January/February, this indicates that the company faces ongoing liquidity challenges,” said Alexopoulos.

Wedbush analyst David Chiaverini cut his $13 price target for Silvergate shares from $9 to $9, reiterating a neutral assessment to report a “lack of near-term positive catalysts and [belief] the crypto market could remain subdued with interest rates raised for the next few quarters “until a pause in rate hikes by the US Federal Reserve.

“[Silvergate] manages a smaller balance sheet to maintain regulatory capital ratios, which could impact its earnings power,” he said.

Silvergate listed a number of accounting issues it is working on, including:

  • Additional time to allow the independently registered audit firm to conduct a review of potential adjustments and internal controls.

  • Perform analysis, record journal entries related to subsequent events, and complete management review of internal controls over financial reporting.

  • Conducting an analysis of regulatory and other investigations and ongoing investigations at the Company.

Silvergate’s Independent Registered Accounting Firm requests details of such matters and the Company responds to such requests.

Founded in 1988 and based in La Jolla, California, Silvergate provides banking and loan services with a focus on financial infrastructure solutions and services for the digital currency industry.

MarketWatch writer Frances Yue contributed to this report.

Read also: Feds are coaching banks in dealing with crypto liquidity crises

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