Customers withdrew $8.1 billion in deposits from Silvergate during a “crisis of confidence” late last year, forcing the crypto-focused US bank to sell assets and underscoring how FTX’s implosion reached the regulated financial sector.
The California-based group’s disclosure on Thursday that its deposits from digital asset customers shrank to $3.8 billion as of Dec. 31 from $11.9 billion at the end of September kept its shares lower New York trade plummets nearly 43 percent.
Silvergate, a member bank of the Federal Reserve and listed on the New York Stock Exchange, has come under severe pressure over the past year as crypto asset prices have fallen and several large companies have gone bankrupt. The bank’s share price fell by 88 percent in 2022.
Silvergate has grown from a tiny community lender to a major crypto bank in recent years and has been key to providing services to Sam Bankman-Fried’s now-collapsed crypto empire.
Silvergate Chief Executive Alan Lane said the crypto industry is facing a “crisis of confidence and in such a situation many of the institutional players have withdrawn money from these trading platforms.”
The group said Thursday in a preliminary earnings report for the fourth quarter that Silvergate had issued $5.2 billion worth of debt.
Lane added that over the past year the sector has experienced “significant levels of over-indebtedness that has been gradually clearing up,” citing the collapse of companies like Celsius, Voyager and Three Arrows Capital. “That was a much more widespread . . . Ecosystem deleveraging that evidently culminated in the collapse of FTX.”
Silvergate said $150 million of its deposits came from customers who had filed for bankruptcy.
“We’ve had clients who were principals, market makers who had been doing business with each other for sometimes six to eight years, who just stopped doing business with each other and withdrew all their deposits,” said Ben Reynolds, President of Silvergate. Some “crypto-native” customers have “moved almost entirely into US Treasuries,” he added.
The group is cutting 200 employees to “account for the economic realities” facing its business and the cryptocurrency industry, which makes up 40 percent of its workforce, it said.
It added that at the end of December it held $4.6 billion in cash and cash equivalents, “which is more” than the remaining $3.8 billion in deposits and $5.6 billion due from the US government and government-backed debt. Silvergate added it plans to sell “a portion” of the debt in early 2023.
The report did not include a complete statement of the Group’s balance sheet or income statement; Silvergate announced it will be releasing its full quarterly and annual earnings report on January 17th.
Silvergate has also halted its plans to launch a digital currency, announcing that it will take a $196 million impairment in the fourth quarter related to the blockchain payment assets it purchased from Diem, the initially Meta-backed cryptocurrency payment project. “There’s significant headwind to getting anything to market in the near future,” Lane said.
The group is also under scrutiny from US lawmakers. Last month, senators including Elizabeth Warren wrote to Lane, demanding clarity on Silvergate’s role in accepting customer deposits for Bankman-Fried’s crypto investment firm Alameda Research, which the former billionaire says should eventually go public on the FTX exchange.
“Silvergate appears to be at the center of abusive transfers of customer funds,” the senators wrote, adding that its involvement showed “egregious failure.”
Silvergate defended its role in accepting deposits for Alameda in December, saying it conducted “extensive due diligence” and so on
“when Silvergate received payments made to Alameda Research and credited them to the account of the same name. . . this was in accordance with the email sender’s instructions and industry practice.”
Additional reporting by Alexandra White in New York
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