Silvergate Capital faced an $8.1 billion bank run following the FTX scandal and was forced to sell assets at a loss, wiping $718 million in the process.
Staff let go
Due to the ongoing crypto insolvency fallout, the bank laid off about 200 employees – 40% of its staff, and announced plans to “pare back its business,”, per The Wallstreet Journal.
Silvergate Capital also liquidated balance sheet debt, resulting in a $718 million loss. The loss far exceeded “the bank’s total profits since at least 2013.”.
The bank primarily works in crypto, taking deposits and operating a network which connects exchanges to investors.
FTX and other companies controlled by its founder, Sam Bankman-Fried, accounted for about $1 billion of the bank’s deposits.
Unlike other banks, Silvergate used a model that focused on bank accounting for crypto exchanges and high net worth investors, with crypto-related deposits equalling around 90% of the bank’s total balance sheet. For this reason, the bank’s financial troubles could not endure the “steep decline in deposits,” particularly as they related to the downfall of FTX.
In a statement, Silvergate said:
As we enter a new year and continue to navigate the current environment, we are focusing our strategy to provide the most value-added solutions for our core digital asset customers.
Massive Q4 withdrawals
Total deposits from crypto customers declined to $3.8 billion from $11.9 billion by the end of Q3 2022, a decline of around 68%. The withdrawals came as crypto exchange FTX, a Silvergate customer, imploded, thereby raising stability concerns.
At the end of Q4 2022, Silvergate said it had around $4.6 billion “on hand,” which is above the “$3.8 billion in remaining deposits.”
By the end of December, $150 million of the bank’s deposits were held by customers who had filed bankruptcy, Silvergate said.
The bank said there was a “crisis of confidence across the ecosystem.”
Silvergate Capital Corporation is down 84% since October.
Under fire
The firm has been hit with a class action lawsuit, and has come under scrutiny for its relationship with FTX fraudster Sam Bankman-Fried (SBF). US senators are demanding answers from CEO Alan Lane for Silvergate’s business with FTX and Alameda Research.
Silvergate appears to be at the centre of the improper transfer of billions in FTX customer funds. Americans need answers,” Senator Elizabeth Warren said in a statement. “Those guilty of wrongdoing must be held accountable.”
The latest reports indicate that JPMorgan has downgraded Silvergate Capital, saying the bank’s huge withdrawals can hurt its stock long term.
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