Crypto bank Silvergate shares dip after firm delay in annual report

Shares of Silvergate Capital Corp fell 29 percent in premarket trading Thursday after the cryptocurrency-focused lender warned it was delaying its annual report and said it was evaluating its ability to continue the business.

silver gate (SI.N) reported a loss of US$1 billion (approximately Rs.8,21,300 crore) for the fourth quarter as investors raced to withdraw deposits following the crypto exchange FTX Bankruptcy and the company’s woes underscore the fragility of trust in digital assets.

The company said it was unable to meet an extended March 16 deadline for the submission of its annual report. In a filing with the Securities and Exchange Commission, it also said it sold additional debt this year to pay down debt and that further losses could mean the bank could be “less than well capitalized.”

Silvergate is “evaluating the impact that these subsequent events will have on its ability to continue as a business,” it said. “The company is currently in the process of re-evaluating its businesses and strategies in light of the business and regulatory challenges it is currently facing.”

JP Morgan downgraded its rating on Silvergate stock to “underweight” from “neutral” and withdrew its price target as sales of more securities suggest the company faces ongoing liquidity problems.

“We now see an elevated risk of further downside in SI shares given the salient risk of the bank’s inability to continue as a going concern,” analysts at JP Morgan said in a research note.

Silvergate shares were trading at $9.57 (approx.) before the opening bell. The stock is down about 96 percent from its record high in November 2021.

Federal prosecutors in Washington are investigating the La Jolla, California-based company and its dealings with FTX and trading company Alameda Research. In January, three US Senators asked Silvergate for details on its risk management and FTX.

Wayne Huang, co-founder and CEO of XREX, a global USD crypto exchange headquartered in Taipei, said the troubles show how interconnected and vulnerable crypto banking has become.

“This underscores the importance of a robust banking network for crypto firms, rather than over-reliance on just multiple banks,” he said. However, the broader digital asset markets have been relatively quiet Bitcoin made little headway despite a fall in the US dollar, last buying $23,457 (about Rs.1,926,523).

“From what we’ve learned, most crypto businesses have already had to find banking elsewhere, so we believe the damage in terms of impact on the broader crypto market is likely already done,” said Matthew Dibb, Chief Investment Officer at cryptocurrency asset manager Astronaut Capital.

Global cryptocurrency exchange binance had secret access to an account at Silvergate owned by its allegedly independent US partner and transferred large sums of money from the account to a trading firm run by Binance CEO Changpeng Zhao, Reuters reported last month.

© Thomson Reuters 2023