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Crypto-Backer Silvergate Bank Slips To $1 Billion Loss

Silvergate Bank Claims to Have 928 Crypto Clients
Silvergate Bank Claims to Have 928 Crypto Clients

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Silvergate Capital Corp reported a net loss of $1 billion in Q2 of 2022 after a revelation earlier in January that investors shaken by the collapse of crypto exchange FTX withdrew over $8 billion in deposits in the last three months leading to December 2022.

Silvergate capital became a publicly traded company in 2019 and is known for handling digital assets and enabling exchanges, institutions, and traders to exchange crypto for fiat currencies. The report shows that the bank’s shares were up by almost 4% in pre-market trading.

In a preliminary earnings report released on January 5, 2023, Silvergate reported total deposits from digital asset customers dipping to $3.8 billion at the end of December last year, relative to the $11.9 billion reported at the end of September. The report also showed that the company sold $5.2 billion of debt securities at a loss of $718 million in Q4 in an attempt to maintain liquidity.

Silvergate Suffers FTX Contagion

The distressing earnings report indicates the extent of the impact on the digital asset sector from the collapse of crypto exchange FTX, which filed for bankruptcy in November after it failed to meet customer withdrawals. The FTX implosion marked a stunning reversal of fortunes for what was once a leading crypto exchange.

In an earlier announcement, Silvergate said it had no outstanding loans or investments in FTX.

Nevertheless, after the collapse of Sam Bankman-Fried’s crypto empire, the bank’s shares declined by 69% in value, provoking a wild crypto sell-off.

Shares of the bank were last up by over 10% as Silvergate attempted to reassure investors that it remained committed to serving the digital asset industry. In a conference call with analysts on Tuesday the bank’s Chief Executive Alan Lane said :

We are in the process of evaluating our product portfolio and customer relationships with a focus on profitability.

Lane added that the bank would be off-boarding some customers separate from its core business in the coming weeks, alongside moves to eliminate certain products like digital asset custody that have become “too costly or complex.”

Silvergate Capital Takes 98% Loss On Diem Group Assets, Stock Price Plummets 43%

Silvergate Capital was also involved in a situation where the bank took a $196 million impairment charge when writing down the value of intellectual property and technology acquired from the Diem Group. Based on recent revelation, this represented a 98% loss compared to the $200 million Silvergate paid for the assets.

The plan to launch a stablecoin using the assets was announced in the third fiscal quarter of 2021. Still, the launch is now firmly on hold after the La Jolla, California-based company announced earlier in January that it would delay the launch of a blockchain-based payment solution bought from Meta Platforms Inc.-based Diem Group last year. The suspension was part of its efforts to slow its business expansion and navigate the deepening crypto downturn.

The crypto-focused bank had also announced earlier that it would reduce its staff count by 40%, translating to about 200 employees.

Silvergate Capital Corp’s retrenchment plans would ensue while it tried to control costs amid a prolonged bear market. 

Following the news of a 68% drawdown on its deposits and a $718 million loss on debt liquidated to fulfill withdrawals, and fueled by plans of headcount reduction of 40%, Silvergate Capital’s stock price plummeted 43%

About Silvergate

Silvergate Capital Corp was established in 1988, and after 25 years of service, the bank ventured into crypto and has not looked back since. Its customers include but are not limited to Coinbase Global Inc., and Kraken, among others.

Silvergate bank had also run a mortgage warehouse business. In a December announcement, however, the bank said it would be closing down that arm, citing the rising interest rate environment as well as the decrease in mortgage volumes.

Based on company filings, Silvergate bank received $4.3 billion in advances from the Federal Home Loan Bank of San Francisco in Q4 of 2022.

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