Crypto-focused US bank Silvergate swung to a $1bn loss in the last three months of 2022, underscoring how the lender has been rocked by the collapse of crypto prices and implosion of exchange FTX.
The California-based bank reported a $1.05bn net loss for the fourth quarter, compared with a profit of $18.4mn in the same period a year earlier, and said it would slash its product offering and offload non-core customers in an attempt to cut costs.
Silvergate has pivoted from a small community lender to becoming a crypto-focused bank in recent years and played a key role in providing services to Sam Bankman-Fried’s now-collapsed crypto empire. The earnings reported on Tuesday underline the extent of the pressure facing the bank, amid plunging crypto prices and the bankruptcy of several large companies, including Bankman-Fried’s FTX and Alameda Research.
Silvergate said it fell to a full-year loss of $949mn in 2022, compared with a profit of $76mn in 2021. Customer deposits plunged by 52 per cent in the last three months of 2022 compared with the third quarter, totalling $6.3bn at the end of the year, as clients rushed to pull their funds during a “crisis of confidence” following the collapse of FTX.
The New York-listed bank said it was preparing for “a sustained period of lower deposits” and would be “offboarding certain non-core customers and eliminating a portion of its product portfolio” in an attempt to cut costs.
“While we are taking decisive actions to navigate the current environment, our mission has not changed,” said Alan Lane, chief executive of Silvergate. “We believe in the digital asset industry,” he added.
Silvergate’s shares rose 4 per cent pre-market trading. They had fallen sharply earlier this month after Silvergate disclosed the decline in deposits as part of a provisional earnings report, and were down about 25 per cent for 2023 as of Monday’s close.
The bank is also facing scrutiny from US lawmakers. In December, senators including Elizabeth Warren wrote to Lane seeking clarity on Silvergate’s role in accepting customer deposits for Bankman-Fried’s firm Alameda Research, which the former billionaire has said were supposed to go to his 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”.