Silvergate Capital Corp. shares sank to a record low after the cryptocurrency-friendly bank said it wouldn’t be able to file its annual report on time and was reviewing whether it can remain viable.
(Bloomberg) — Silvergate Capital Corp. shares sank to a record low after the cryptocurrency-friendly bank said it wouldn’t be able to file its annual report on time and was reviewing whether it can remain viable.
Shares of the La Jolla, California-based lender fell as much as 50% to $6.80 Thursday morning, its lowest level since going public in late 2019.
“Silvergate’s 10-K filing will be delayed to allow additional time for its independent registered public accounting firm to complete certain audit procedures,” a spokesperson for the bank said Thursday in a statement. “Silvergate is working diligently to file its 10-K as soon as possible and has no further comment at this time.”
Cryptocurrency firms Coinbase Global Inc., Galaxy Digital Holdings Ltd. and Paxos Trust Co. said Thursday that they will no longer accept or initiate payments through Silvergate. The exodus may threaten Silvergate’s SEN network, the bank’s key source of deposits and a platform for crypto participants to transfer money among each other.
“In light of recent developments & out of an abundance of caution, Coinbase is no longer accepting or initiating payments to or from Silvergate,” the company said on Twitter. “Coinbase will be facilitating institutional client cash transactions with our other banking partners.”
Silvergate said in a regulatory filing late Wednesday that it sold additional debt securities in January and February and expects to incur more losses that will hurt its capital ratios and could result in the bank being considered less than well-capitalized.
“The company is evaluating the impact that these subsequent events have on its ability to continue as a going concern,” it said in the filing with the US Securities and Exchange Commission.
The warning led to at least three analysts cutting their ratings on Silvergate. Canaccord Genuity Group Inc. lowered the bank to hold, while JPMorgan Chase & Co. downgraded the stock to underweight and Compass Point Research & Trading LLC cut it to neutral. Morgan Stanley analyst Manan Gosalia, who already had a sell-equivalent rating on the stock, removed his price target entirely, citing the “high level of uncertainty” around the firm.
The shaky status of the bank, which holds federally insured deposits and more than $11 billion in assets, will add fuel to a debate among US lawmakers and regulators over whether banks can manage the risks that come with digital assets.
“It confirms the fears that many regulators have had,” said Todd Baker, a senior fellow at Columbia University’s Richman Center for Business, Law and Public Policy. “If this bank fails, it’s going to be held up as an example of why banks should be extremely conservative in dealing with crypto companies.”
Even if that doesn’t happen, Silvergate’s travails will stoke even greater caution on the part of regulators, he said.
In early January, three top financial regulators — the Federal Reserve, Office of the Comptroller of the Currency and Federal Deposit Insurance Corp. — issued a blunt warning to banks that crypto-related risks that can’t be controlled shouldn’t be allowed to infect the banking system.
Silvergate added to the the US policy debate when it revealed in January how it was stabilizing its balance sheet after selling billions in assets to pay depositors. By the end of last year the firm held $4.3 billion in short-term Federal Home Loan Bank advances, a program originally set up under President Herbert Hoover to bolster mortgage lending.
On Wednesday, Silvergate listed a Justice Department probe and increased regulatory scrutiny among factors that could ultimately affect financial results.
Silvergate’s stock tumbled more than 88% last year, first as crypto prices slid and later as FTX collapsed. The shares have been on a roller coaster ever since — at one point swinging by more than 50% in a single day — as investors struggled to gauge the company’s prospects for reviving.
Its current predicament will make other banks all the more reluctant to work with crypto ventures, resulting in a chilling effect on that industry, said Henry Elder, head of decentralized finance at digital-asset manager Wave Financial.
“They were the crypto bank,” Elder said. “You are certainly not going to see anyone come out as a crypto bank until there’s more clarity.”
–With assistance from Yueqi Yang.
(Updates with Silvergate comment in third paragraph, Coinbase and Galaxy Digital starting in fourth.)
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