Silvergate Becomes Takeover Bait as Crypto Bank Depositors Flee

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Silvergate Capitals’ share price plunge threatens the independence of crypto-friendly banks after the company revealed that more than two-thirds of its deposits were withdrawn in the fourth quarter.

Citing a transformational change in the cryptocurrency industry that led to multiple bankruptcies last year, Silvergate provided preliminary results for the last quarter that showed its customer deposits of digital assets, the core business, fell to $3.8 billion at year-end, from $11.9 billion on September 30. .

The bank was quick to point out that it held $4.6 billion in cash and cash equivalents as of December 31, allowing it to more than meet withdrawals from all of its crypto-related clients. But the shrinkage of a company that held $14.1 billion in assets in the digital currency sector at the start of last year and a market capitalization that fell to $398 million from $4.5 billion dollars since then have put its continued existence as a stand-alone company in doubt. The shares lost 43% of their value on Thursday, slipping to $9.40.

Speaking on a conference call to explain its release of fourth-quarter metrics, executives raised the possibility that Silvergate would find itself a takeover target, Yahoo reported, based on its attractive price. Such a transaction could be encouraged by federal regulators, such as the Office of the Comptroller of the Currency (OCC).

Someone is going to have to come to Silvergate with the reviewers and figure something out by Monday because it’s getting a bit out of hand and it’s a licensed entity, says Paul Schulte, founder and editor of Schulte Research, based in Hong Kong, which provides information. on banking and fintech. I bet the OCC will be in the Silvergate offices this weekend. They’re going to have to do a bank cleanup, figure out who’s at risk, how much is at stake here, who’s responsible, and who’s potentially going to lose. Can they do anything before they open on Monday to prevent this from spreading?

He compared the situation to the 2008 bailouts of Washington Mutual and Wachovia, which were destabilized by the US housing crisis and were swallowed up by bigger rivals.

Silvergate did not immediately respond to Forbes’ request for comment.

The company’s problems stem from the nearly year-long decline in cryptocurrency markets, which has led many of its clients to pull out of digital assets. To fund the wave of withdrawals, which coincided with the breakup of top client FTX, Silvergate sold $5.2 billion worth of debt securities at a loss of $718 million and said it would lay off 40 % of its staff (about 200 people).

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Despite the crypto upheaval, the Silvergate Exchange Network, the banks’ real-time payments platform, continued to operate with an average daily trading volume of $1.3 billion in the fourth quarter, down from 1. $2 billion in the prior quarter.

The bank announced that it had suspended plans to launch its own stablecoin. It recorded a loss of $196 million related to its delisting of assets from Diem, a stablecoin project founded by Meta, which Silvergate acquired last year.

The report did not include details of Silvergates’ balance sheet or income statement; the company is expected to release its quarterly and annual earnings report on Jan. 17. The company hit highs with the crypto boom, with its stock gaining more than 1,700% from its initial public offering of $12 per share in 2019 to peaking at $220 in late 2021.

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