Cryptobank Silvergate sinks after delayed annual report

March 1 (Reuters) – Shares in Silvergate Capital Corp fell 29% in premarket trade on Thursday, after the cryptocurrency-focused lender warned it was delaying its annual report and said it was evaluating its ability to operate as a going concern.

Silvergate ( SI.N ) reported a loss of $1 billion for the fourth quarter as investors raced to withdraw deposits in the wake of crypto exchange FTX’s bankruptcy, and the firm’s troubles highlight the fragility of confidence in digital assets.

The company said it would not be able to meet an extended March 16 deadline to file its annual report. It also said, in a filing with the Securities and Exchange Commission, that it had sold additional debt securities to repay debt this year and that further losses mean the bank may be “less than well capitalised”.

Silvergate is “evaluating the impact these subsequent events have on its ability to continue as a going concern,” it said. “The company is currently reassessing its businesses and strategies in light of the business and regulatory challenges it currently faces.”

JP Morgan downgraded its rating on Silvergate’s shares to “underweight” from “neutral” and withdrew its price target, saying the sale of additional securities suggests the firm faces continued liquidity challenges.

“We now see increased risk of further downside in SI shares given the unprecedented risk of the bank being unable to continue as a going concern,” JP Morgan analysts said in a research note.

Silvergate’s shares were trading at $9.57 before the opening bell – on course to open at their lowest in nearly three years if the losses continue. The stock has fallen about 96% from its record high close in November 2021.

Federal prosecutors in Washington are investigating the La Jolla, California-based company and its ties to FTX and trading firm Alameda Research. In January, three US senators asked Silvergate for details about its risk management and FTX.

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

“This underscores the importance of having a robust banking network for crypto firms, rather than the over-reliance on just multiple banks,” he said. Major digital asset markets were relatively calm, although bitcoin made little progress despite a fall in the US dollar, last buying at $23,457.

“From what we’ve gathered, most crypto companies have already had to find banks elsewhere, so we think the damage is probably already done in terms of implications for the broader crypto market,” said Matthew Dibb, chief investment officer at cryptocurrency asset manager Astronaut Capital .

Global cryptocurrency exchange Binance secretly accessed an account at Silvergate belonging to its allegedly independent US partner and transferred large sums of money from the account to a trading firm managed by Binance CEO Changpeng Zhao, Reuters reported last month.

Reporting by Noel Randewich and Amruta Khandekar; Additional reporting by Rae Wee and Tom Westbrook in Singapore; Editing by Lincoln Feast and Saumyadeb Chakrabarty

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