Focus
Silvergate price spikes 28% despite $1 billion net loss in Q4 2023
(Kitco News) - Silvergate Bank, which focuses on serving clients in the cryptocurrency industry, has reported a net loss of more than $1 billion in the fourth quarter of 2023 due to a “transformational shift” in the digital asset industry.
According to the bank, the over-leverage in the industry which led to several high-profile bankruptcies “created a crisis of confidence across the ecosystem and led many industry participants to shift to a “risk off” position across digital asset trading platforms.”
A statement released by Silvergate shows that it posted a net loss of $1.05 billion in Q4, a notable decline from the $18.4 million profit generated during the same period a year earlier. The bank reported a $751 million loss on securities and a $135 million impairment charge related to the estimated $1.7 billion of securities it expects to sell in the first quarter of 2023 to reduce borrowings.
The crypto-focused bank experienced a significant outflow of deposits in Q4 which forced it to take several actions “to maintain cash liquidity,” including the utilization of wholesale funding and the sale of debt securities “to accommodate sustained lower deposit levels and maintain its highly liquid balance sheet.”
According to the report, Q4 of 2022 saw average digital asset customer deposits of $7.3 billion, an amount that is significantly lower than in Q3 when deposits were around $12 billion. The bank indicated that it is preparing to deal with a lower level of deposits for the foreseeable future.
In an effort to survive an extended period of lower deposits, Silvergate is taking several actions to help ensure the business remains resilient, including “managing its expense base and evaluating its product portfolio and customer relationships going forward.” The bank was also forced to lay off 40% of its staff in the first week of January as part of its efforts to reduce costs.
“While we are taking decisive actions to navigate the current environment, our mission has not changed. We believe in the digital asset industry, and we remain focused on providing value-added services for our core institutional customers,” said Alan Lane, chief executive officer of Silvergate. “To that end, we are committed to maintaining a highly liquid balance sheet with a strong capital position.”
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Following the bank’s struggles, rating firm Moody’s Investors Service downgraded Silvergate's rating from Baa2, which was “lower-medium grade,” to Ba1, which is considered “junk,” and noted that the outlook moving forward for both Silvergate Capital and its bank is negative.
Adding to the banks’ struggles, a class-action lawsuit was filed last week claiming that Silvergate’s platform failed to detect occurrences of money laundering “in amounts exceeding $425 million,” for which the company was likely to face regulatory repercussions.
SI/USD 1-hour chart. Source: TradingView
Despite these struggles, Silvergate’s (SI) stock price experienced a 28.62% rally at the market open on Tuesday following the holiday weekend to hit a daily high of $16.97, but has since pared back some of those gains and currently trades at a price of $14.65, an increase of 10.9% on the 24-hour chart.
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