Signature could ‘thread the needle’ on cutting crypto as Silvergate collapses: JPMorgan
As crypto-exposed bank Silvergate Capital ( SI ) faces financial and regulatory concerns that have raised questions about its long-term viability, analysts at JPMorgan maintained optimism about shares of Signature Bank ( SBNY ), another key banking partner for the crypto industry.
In a note to clients published Monday, the firm reiterated an overweight rating on Signature shares, writing: “On an aggregate basis, the mid-quarter update provided by Signature ‘threads the needle’ as the company continues to reduce exposure to digital assets. deposits, but most importantly, at a pace that seems to be dictated by the signature rather than by the markets.”
In its mid-quarter update, Signature showed spot deposit balances through January and February were $826 million lower. However, the bank said the decline was “driven by the deliberate decline in client-related digital asset deposits of $1.51 billion.” Excluding digital asset-related deposits, Signature increased by $682 million for the same period.
Late last week shares in Silvergate fell almost 60% after another delay to its annual filing and disclosure of further losses, casting doubt on its ability to operate next year. Amid this downturn, crypto firms quickly distanced themselves from Silvergate, adding new challenges to the firm’s digital asset deposits that had become key to banking.
In the fourth quarter, Silvergate’s deposits fell by $8.1 billion, or more than two-thirds. In the same period, Signature’s total deposits fell by a more modest 14%.
JPMorgan also does not see Signature facing as acute a challenge as Silvergate, as the firm had been planning a reduction in its digital asset-related deposits since late last year. Through the first two months of 2023, Signature reduced its loan balances by $1.7 billion, $200 million more than what JPMorgan expected.
“As the industry works through the challenging deposit environment going forward and uncertainty dissipates, we see the current discount valuation at SBNY being replaced with more in line with the long-term growth potential of the franchise,” the firm added.
Shares in Signature bank fell about 1.2% in late morning trading on Monday; over the past year, the stock has lost almost two-thirds of its value.
Silvergate shares rose more than 4.5 percent on Monday.
Data analytics firm S3 Partners found that Silvergate was the most shorted company in the stock market last Thursday, measured by percentage of floating shares, with more than 85% of shares available for loans being sold short. By comparison, bets against Signature were that a more modest 5.6% of the float was sold short.
David is a reporter for Yahoo Finance. Follow him on Twitter @DSHollers
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