Signature Bank Stock In Freefall After Silvergate Collapse

Updated: 11 March 2023

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On Thursday, the stock price of Signature Bank experienced a decline after Silvergate, another prominent bank for crypto firms, announced its plan to wind down operations.

The stock price of Signature Bank fell by over 10% to approximately $92.40 per share, which was its lowest price in over two years. Meanwhile, Silvergate’s stock price plummeted by over 20% to around $3.88.

On Wednesday, Silvergate Capital Corporation, the holding company for Silvergate Bank, announced its voluntary liquidation due to “recent industry and regulatory developments.” The bank plans to repay bank deposits to its customers in full.

Silvergate Bank had previously declared its plan to shut down its Silvergate Exchange Network (SEN), a round-the-clock settlement service used by its clients. This decision has prompted multiple digital asset firms to distance themselves from Silvergate. At least four crypto exchanges, including Coinbase and Gemini and stablecoin issuers Circle and Paxos, have stated that their relationship with Silvergate would change.

In response to the news of Silvergate’s voluntary liquidation, investment firm Galaxy Digital has stopped accepting or starting transfers to the bank. Meanwhile, Tether and MicroStrategy, the largest Bitcoin treasury among public companies, took to Twitter to ease fears about their potential exposure to the bank’s closure. Silvergate provided MicroStrategy with a $205 million loan in March of last year.

Because of the delayed filing of its annual financial report with the Securities and Exchange Commission, Silvergate’s stock price has plummeted, suggesting that the bank incurred more losses in the final quarter of 2022 than previously reported. As per its latest earnings release, Signature reported $110 billion in total assets for the same period. Silvergate’s initial earnings report showed total assets of $11 billion as of the end of last year.

Signature Bank’s Cryptocurrency Woes Lead to Investor Hesitancy

Silvergate’s decision to shut down has resulted in a drop in cryptocurrency prices, with Ethereum and Bitcoin falling by 1.6% and 2.5%, respectively, on Thursday. Although Silvergate’s troubles may lead other companies to seek Signature as a banking partner experienced with cryptocurrencies, Thursday’s declines show investors are more hesitant about banks getting involved with this asset class.

Last month, Signature faced a class-action lawsuit over its previous association with the bankrupt cryptocurrency exchange FTX, with allegations that Signature “had actual knowledge of and substantially facilitated the now-infamous FTX fraud.”

Signature Bank’s President and COO, Eric HowellHowell, reiterated the bank’s intention to decrease its involvement in the digital asset industry by reducing bank deposits for crypto firms. Howell emphasized that the bank’s relationships with the digital asset sector are limited solely to U.S. dollar deposits. Signature Bank had previously announced this plan and remains committed to steadily decreasing these deposits.

Silvergate delayed filing its annual 10-K report with the Securities and Exchange Commission (SEC). This led to several companies in the digital asset industry distancing themselves from the bank on Thursday. In its SEC filing, Silvergate showed that its financial health might differ from previously disclosed, as it sustained more losses during its fourth financial quarter of last year than it initially reported in January.

Following the collapse of cryptocurrency exchange FTX, Silvergate Bank is facing scrutiny from Congress, with Senator Elizabeth Warren demanding transparency from CEO Alan Lane regarding the bank’s potential role in the incident. The Department of Justice is also investigating the bank’s relationship with FTX founder Sam Bankman-Fried, who has been charged with financial crimes.

As a result, investors on Wall Street, including George Soros’ hedge fund, are betting against Silvergate, with 71% of available shares being sold short, making it one of the fastest publicly-traded companies in the U.S.