Silvergate Capital to liquidate after crypto collapse wipes out bank
Silvergate Capital (SI) said Wednesday afternoon that it will wind down operations and voluntarily liquidate its bank after a collapse in the crypto market has seen billions in deposits leave the bank in recent months.
“In light of recent industry and regulatory developments, Silvergate believes that an orderly winding down of the bank’s operations and a voluntary liquidation of the bank is the best way forward,” the La Jolla, California bank said in a regulatory filing.
“The bank’s liquidation and winding-up plan includes full repayment of all deposits. The company is also considering how best to resolve claims and preserve the residual value of its assets, including its proprietary technology and tax assets,” Silvergate said.
Shares in Silvergate have fallen more than 42% in after-market trading. The stock opened at $150 per share on its first day of trading last year.
Following the collapse of crypto exchange FTX in late 2022, Silvergate recorded a loss of nearly $1 billion and saw total deposits from digital asset accounts drop to $3.8 billion from $11.9 billion through the fourth quarter.
Exactly one week ago, the company filed a notice that it would delay filing its annual report citing business and regulatory challenges, which had prompted the company to weigh how much changes could affect its “ability to continue as a going concern in the twelve months.”
The announcement caused the stock to plunge by more than half last Thursday. Shares fell below $3.00 in Wednesday’s after-hours trading.
Following last week’s notice, crypto-related firms using the bank such as Coinbase, Paxos, Galaxy Digital and others distanced themselves from Silvergate, accelerating further withdrawals.
The company suspended the Silvergate Exchange Network (SEN) on Friday afternoon. Along with Signature Bank’s Signet platform, SEN was one of two platforms that offered crypto firms US banking access outside regular banking hours.
Silvergate Bank, a state chartered bank, is jointly regulated by the Federal Reserve and the State of California. Its holding company, Silvergate Capital, is also regulated by the Federal Reserve.
California’s Department of Financial Protection and Innovation is monitoring the situation, according to a statement from Commissioner Clothilde Hewlett.
“The department evaluates compliance with all financial laws, as well as safety and soundness obligations, and works closely with relevant federal counterparts,” Hewlett added.
Citing an unnamed source, Bloomberg reported Tuesday afternoon that the Federal Reserve had authorized the Federal Deposit Insurance Corporation (FDIC) to begin talks with Silvergate to avoid a shutdown. FDIC examiners have been at the company’s headquarters since last week.
The Federal Reserve declined to comment.
In connection with the liquidation, Silvergate has engaged Centerview Partners LLC to act as its financial advisor, Cravath, Swaine & Moore LLP as legal advisor and Strategic Risk Associates to provide transition project management assistance.
Silvergate became a regional bank in 1996, but it wasn’t until 2014 that CEO Alan Lane opted for the company to start serving crypto clients like the now-bankrupt Genesis.
The company carved a niche for itself by providing banking access to a growing number of crypto startups. These offerings evolved into SEN, where 24/7 operating crypto depositors could make transfers and loans in US dollars outside of traditional banking hours.
Silvergate had $1.8 billion in total deposits and $2 billion in assets at the end of Q4 2018. By the crypto’s peak in 2021, its total deposits and assets had risen to $14.3 billion and $16 billion, respectively.
Following the bankruptcy of crypto exchange FTX, Silvergate’s total deposits and assets fell to $6.2 billion and $11.3 billion at the end of last year’s fourth quarter.
With this drop in deposits, Silvergate’s capital relative to assets shrank by half. That gearing ratio fell from 10.7% in the third quarter to 5.3%, a level of particular concern for banks with regulators having reason to advocate for any US bank below 5%.
Silvergate’s liquidation raises further questions about whether US banks will shy away from the digital asset industry, limiting access for crypto firms.
David Hollerith is a reporter for Yahoo Finance. Follow him on Twitter @DSHollers
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