Silvergate sees earnings jump, showing business ‘intact’

(Bloomberg) — Silvergate Capital Corp . rose following the release of fourth-quarter results that further outlined the steps the bank is taking to weather the FTX debacle, after the crypto exchange’s collapse forced it to lay off staff and sell assets.

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Silvergate reported a loss of $1 billion for the period and said it would divest itself of some non-core digital asset customers, eliminate part of its digital asset product portfolio and evaluate its pipeline of potential customers. The bank will also stop offering its cryptocurrency custody service, its chief executive Alan Lane said.

The news struck a chord with investors who had already digested Silvergate’s preliminary results earlier this month that revealed a dramatic drop in deposits and plans to lay off 40% of the bank’s staff. That may have left them less gradual heading into Tuesday’s earnings.

“Things have picked up a little bit and I don’t think there were any surprises,” KBW analyst Michael Perito said in a phone interview. He pointed to Silvergate’s $4.6 billion in cash, as well as book value of $12.93 per common share — a key indicator of the bank’s health that is better than Perito expected.

“The business is intact and has weathered a historic shock to its system, with still plenty of capital and liquidity,” Perito wrote in an earlier note.

Still, Silvergate’s results showed how FTX’s collapse sent depositors fleeing, with its total average deposits for digital asset buyers in the fourth quarter at $7.3 billion, compared with an average of $12 billion in the prior period. Signature Bank, which also reported results on Tuesday, said deposits from cryptocurrency clients fell by $7.35 billion.

Shares of La Jolla, California-based Silvergate jumped as much as 28.5% on Tuesday before paring those gains to $13.91 at 1:30 p.m. in New York. Signature Bank rose as much as 11% earlier in the day before similarly shedding most of those gains.

“Decisive Actions”

“While we are taking decisive steps to navigate the current environment, our mission has not changed,” Lane said in a statement Tuesday. “We believe in the digital asset industry and remain focused on providing value-added services for our key institutional clients.”

During a conference call with analysts, Lane said the bank will stop offering certain cash management services and end cryptocurrency custody services because they no longer offer profitability. Silvergate’s discharge of certain “non-core” clients would likely not exceed more than 10% of digital asset deposits, Lane said.

Silvergate’s $1 billion loss stemmed largely from asset sales it was forced to make following the collapse of FTX. It also recorded a $134.5 million impairment charge related to about $1.7 billion in securities it expects to sell in the first quarter of 2023 to reduce borrowings.

The bank said in its preliminary results earlier this month that customers withdrew roughly $8.1 billion in deposits in the last three months of 2022 as FTX fell apart.

“The only positive thing to say about this report is that people were already fearing the worst, so the stock may experience a better-than-expected bounce,” Vital Knowledge founder Adam Crisafulli wrote in a note. “Other than that, there’s little to be excited about.”

Both Silvergate and Signature have pitched themselves as banks that go to crypto companies and as early service providers to the industry. They have built systems that enable real-time fiat currency transactions between cryptocurrency clients with bank deposits. Silvergate has made cryptocurrency by far the central aspect of its business, intensifying the impact of the FTX implosion. Signature, with multiple diversified business lines, embarked on an extensive withdrawal from the crypto industry following the collapse.

(Updates with the latest stocks in the sixth paragraph and details from the conference call in the ninth paragraph.)

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