Customers pulled $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 digital asset customer deposits fell to $3.8 billion as of December 31 from $11.9 billion at the end of September prompted its shares fell nearly 43 percent in New York trading.
Silvergate, which is a member bank of the Federal Reserve and is listed on the New York Stock Exchange, has come under heavy pressure over the past year as crypto asset prices have fallen and several major players have gone bankrupt. The bank’s share price had fallen 88% in 2022.
Silvergate has grown from a small community lender to a major crypto bank in recent years and was key in providing services to the now-collapsed Sam Bankman-Fried crypto empire.
Silvergate CEO Alan Lane said the crypto industry was facing a “crisis of confidence, and in that kind of situation, a lot of the institutional players have been pulling money out of these trading platforms.”
The group said in an interim fourth-quarter earnings report on Thursday that to deal with customer withdrawals and raise cash, Silvergate rushed to sell $5.2 billion worth of debt securities at a loss of $718 million. dollars
Lane added that the sector experienced “significant over-leveraging that started to unwind” last year, citing the collapse of firms such as Celsius, Voyager and Three Arrows Capital. “This was much more widespread . . . the deleveraging of the ecosystem that obviously culminated in the collapse of FTX.”
Silvergate said $150 million of its deposits came from customers who had filed for bankruptcy.
“We had clients who were proprietary traders, market makers who had been doing business for six to eight years sometimes who stopped doing business with each other and withdrew all their deposits,” said Ben Reynolds, president of Silvergate. Some “crypto-native” clients had “moved almost entirely to US Treasuries,” he added.
The group is cutting 200 employees “due to the economic realities” facing its business and the cryptocurrency industry, which accounts for 40 percent of its workforce, it said.
It added that it had $4.6 billion in cash and cash equivalents at the end of December, “which exceeds” the remaining $3.8 billion in deposits, and $5.6 billion in debt from the US government and agencies. Silvergate added that it planned to sell “a portion” of the debt in early 2023.
The report did not include a full accounting of the group’s balance sheet or profit and loss account; Silvergate said it will release its full quarterly and annual earnings report on January 17.
Silvergate has also halted plans to launch a digital currency and said it would take a $196 million impairment charge in the fourth quarter related to blockchain payment assets it bought from Diem, the crypto-backed payment project originally by Meta. “There are significant headwinds to launching anything in the near future,” Lane said.
The group also faces scrutiny from US lawmakers. Last month, senators including Elizabeth Warren wrote to Lane seeking clarity on Silvergate’s role in accepting deposits from clients for Bankman-Fried’s crypto investment firm Alameda Research, which the former billionaire has said that he should finally go to the FTX exchange.
“Silvergate appears to be at the center of improper transfers of customer funds,” the senators wrote, adding that its involvement showed a “flagrant failure.”
Silvergate in December defended its role in accepting deposits for Alameda, saying it conducted “extensive due diligence” and that “when Silvergate received payments directed to Alameda Research and credited them to Alameda’s account name . . . this was consistent with the cable sender’s instructions and industry practice.”
Additional reporting by Alexandra White in New York
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