Clients pulled $8.1bn in deposits from Silvergate in late 2022, forcing the crypto-focused US bank to sell assets and underscoring how the implosion of FTX has rippled into the regulated financial sector.
The California-based group’s disclosure on Thursday that its deposits shrank to $3.8bn on December 31 from $11.9bn at the end of September sent its shares plummeting 40 per cent in pre-market trading in New York.
Silvergate, which is a Federal Reserve member bank and is listed on the New York Stock Exchange, has come under heavy pressure over the past year as crypto asset prices have tumbled and several big players have collapsed in to bankruptcy. Its shares dropped 88 per cent in 2022.
Silvergate has grown from a tiny community lender into a major crypto bank in recent years and was key in providing services to Sam Bankman-Fried’s now-collapsed crypto empire.
The group said in a provisional fourth-quarter earnings report on Thursday that in order to meet customer withdrawals and raise cash, Silvergate rushed to sell $5.2bn worth of debt securities at a loss of $718mn. It added that $150mn of its deposits were from customers that have filed for bankruptcy.
The group is cutting 200 employees to “account for the economic realities” facing its business and the cryptocurrency industry, which account for 40 per cent of its staff, it said on Thursday.
It added that it held $4.6bn worth of cash and equivalents “which is in excess of deposits”, and $5.6bn of US government and agency-backed debt. Silvergate added that it plans to sell “a portion” of the debt in early 2023.
The report did not include a full accounting of the group’s balance sheet or income statement; Silvergate said it would publish its full quarterly and annual earnings report on January 17.
Silvergate is also facing scrutiny from US lawmakers. Last month, senators including Elizabeth Warren wrote to the bank’s chief executive Alan Lane urging clarity on its role in accepting customer deposits for Bankman-Fried’s crypto investment firm, Alameda Research, which the former billionaire has said were ultimately supposed to go the FTX exchange.
“Silvergate appears to be at the centre of improper transfers of customer funds,” the senators wrote, adding that its involvement showed an “egregious failure”.
Silvergate in December defended its role in accepting deposits for Alameda, saying it conducted “extensive due diligence” and that
“when Silvergate received payments directed to Alameda Research and credited it to the account of the same name . . . this was consistent with the instructions from the sender of the wire and industry practice”.