Silvergate warns of more losses, viability from crypto crisis

San Diego’s crypto-friendly Silvergate Bank has revealed that its financial health has taken a turn for the worse amid continued problems plaguing the digital currency industry – raising questions about its ability to remain a going concern.

Silvergate, which tailored its business towards providing deposit accounts, fund transfers, a real-time payment network and other banking infrastructure to the cryptocurrency industry, revealed that it has suffered further losses in January and February from the sale of debt securities that halted the cryptocurrency. -related deposits.

Those losses would put pressure on the FDIC-insured bank’s regulatory capital reserves and “could cause the company and the bank to be less than well capitalized,” Silvergate said in a filing with the US Securities and Exchange Commission on Wednesday.

In those circumstances, Silvergate said it is evaluating “the impact of these subsequent events on its ability to continue as a going concern in the twelve months following the release of its financial statements.”

Silvergate said it likely would not be able to file its annual report with the SEC by the March 16 deadline as it works to respond to questions related to regulatory and other “inquiries and investigations.”

The bank’s independent accounting firm also needs more time to complete certain audit steps before filing the annual report, a Silvergate spokesman said in an email.

The revelations sent the bank’s already battered shares tumbling 58% to $5.72 a share on Thursday. The stock is down from a peak of $158 a share about a year ago during the crypto boom.

“It confirms the fears that many regulators have had,” Todd Baker, a senior fellow at Columbia University’s Richman Center for Business, Law and Public Policy, said in an interview with Bloomberg. “If this bank fails, it will be held up as an example of why banks should be extremely conservative with crypto companies.”

Silvergate has been under increasing pressure amid a handful of high-profile bankruptcies in the crypto industry – marked by the collapse of FTX and criminal fraud charges against founder Sam Bankman-Fried.

Both FTX and sister company Alameda Research had accounts in Silvergate. A group of US senators led by Elizabeth Warren is investigating why Silvergate’s anti-money laundering and Bank Secrecy Act compliance programs failed to red flag inappropriate transfers between FTX and Alameda.

After FTX’s collapse in November, Silvergate saw a run on its deposits, which fell to $3.8 billion from $11.9 billion in the fourth quarter.

The bank lost $1 billion in the fourth quarter because it was forced to sell debt securities intended to be held to maturity earlier than planned to cover deposit withdrawals. It also laid off 181 workers in San Diego to reduce expenses — including its chief credit officer and head of anti-money laundering and sanctions.

At year-end, Silvergate had $4.6 billion in short-term cash or equivalents, which exceeds $3.8 billion in deposits outstanding from crypto customers, according to the bank.

A large portion of the money came from $4.3 billion in short-term advances from the Federal Home Loan Bank of San Francisco. In Wednesday’s SEC filing, Silvergate said it had sold additional investment securities to repay the FHLB loans in full.

At the end of the fourth quarter, Silvergate had $5.6 billion worth of debt securities available for sale. The value of that portfolio today is unclear. The bank may face a decline in the value of the portfolio in addition to the losses from earlier than expected sales in order to repay the FHLB.