Customers withdrew $8.1 billion in deposits from Silvergate during a ‘crisis of confidence’ late last year, forcing the crypto-focused U.S. bank to sell assets and underscoring how the implosion of FTX has reached the regulated financial sector.
The California-based group’s Thursday disclosure showing its digital asset customer deposits fell to $3.8 billion on December 31, from $11.9 billion at the end of September, sent its shares plummeting as much as 41% in exchanges in New York.
Silvergate, which is a member bank of the Federal Reserve and is listed on the New York Stock Exchange, has come under severe pressure over the past year as crypto asset prices have fallen and several big players have collapsed. bankrupt. The bank’s share price had already fallen 88% in 2022.
Silvergate has grown from a small community lender to a major crypto bank in recent years and has played a key role in providing services to Sam Bankman-Fried’s now-collapsed crypto empire.
Alan Lane, Managing Director of Silvergate, said the crypto industry is facing a “crisis of confidence and in this kind of situation, many institutional players have pulled money from these trading platforms”.
The group said in an interim fourth-quarter earnings report on Thursday that to cope with customer withdrawals and raise cash, Silvergate rushed to sell $5.2 billion worth of debt securities with a loss of 718 millions of dollars.
Lane added that the sector experienced “significant over-indebtedness which began to ease” last year, citing the collapse of companies such as Celsius, Voyager and Three Arrows Capital. It was much more common. . . ecosystem deleveraging which obviously culminated in the collapse of FTX.
Silvergate said $150 million of its deposits came from customers who had filed for bankruptcy.
“We had clients who were proprietary traders, market makers who had been doing business with each other for sometimes six to eight years, who just stopped doing business with each other and withdrew all their deposits,” Ben Reynolds said. , chairman of Silvergate. He added that some “crypto-native” customers have “moved almost completely to US Treasures.”
The group is cutting 200 staff to “count on the economic realities” facing its business and the cryptocurrency industry, which makes up 40% of its staff, he said.
He added that he held $4.6 billion in cash and cash equivalents at the end of December, “which exceeds” the remaining $3.8 billion in deposits and $5.6 billion in US government-backed debt. and agencies. Silvergate added that it plans to sell “some” of the debt in early 2023.
The report did not include a full accounting of the group’s balance sheet or income statement; Silvergate said it will release its full quarterly and full-year earnings report on January 17.
Silvergate also halted plans to launch a digital currency and said it would take a $196 million impairment charge in the fourth quarter related to blockchain payment assets it purchased from Diem, the payment project. cryptographic originally backed by Meta. “There are significant headwinds to launch something in the near future,” Lane said.
The group is also under intense scrutiny from US lawmakers. Last month, senators including Elizabeth Warren wrote to Lane asking for clarification on Silvergate’s role in accepting customer deposits for Bankman-Fried’s crypto investment firm, Alameda Research, which, according to the former billionaire, was eventually to go to the FTX exchange.
“Silvergate appears to be at the center of improper transfers of client funds,” the senators wrote, adding that his involvement showed a “flagrant failure.”
Silvergate in December defended its role in taking deposits for Alameda, saying it conducted “thorough due diligence” and that
When Silvergate received payments directed to Alameda Research and credited them to the Alameda Research account. . . this was in accordance with the wire sender’s instructions and industry practice. »
Additional reporting by Alexandra White in New York
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