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Silvergate Capital will liquidate after crypto collapse wipes out bank

Silvergate Capital (SI) said Wednesday afternoon it will wind down operations and voluntarily liquidate its bank after a collapse in the crypto market saw billions in deposits leave the bank in recent months.

"In light of recent industry and regulatory developments, Silvergate believes that an orderly wind down of Bank operations and a voluntary liquidation of the Bank is the best path forward," the La Jolla, California bank said in a regulatory filing.

"The Bank's wind down and liquidation 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 of Silvergate have plummeted more than 42% in after-hours trading. The stock opened at $150 per share on the first trading day of last year.

After the collapse of crypto exchange FTX in late 2022, Silvergate posted nearly a billion dollar loss and saw its total deposits from digital asset customers decline to $3.8 billion from $11.9 billion through its fourth quarter.

Exactly a week ago the company filed a notice it would delay the filing of its annual report citing business and regulatory challenges, which had caused the company to weigh how much changes might affect its "ability to continue as a going concern for the twelve months."

The notice caused the stock to plummet 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, hastening 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 U.S. banking access outside regular banking hours.

Silvergate Bank, a state-charted 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 its commissioner, Clothilde Hewlett.

"The Department is evaluating compliance with all financial laws, as well as safety and soundness obligations, and is working closely with relevant Federal counterparts," Hewlett added.

Citing an unnamed source, Bloomberg reported Tuesday afternoon that the Federal Reserve had approved the Federal Deposit Insurance Corporation (FDIC) to begin talks with Silvergate to avoid a shutdown. FDIC examiners have been at the business' headquarters since last week.

The Federal Reserve declined to share comments.

In connection with the liquidation, Silvergate has hired Centerview Partners LLC to act as its financial advisor, Cravath, Swaine & Moore LLP as its legal advisor, and Strategic Risk Associates to provide transition project management assistance.

Slivergate CEO Alan Lane, second from right, is applauded as he rings the New York Stock Exchange opening bell before his bank's IPO begins trading, Thursday, Nov. 7, 2019. (AP Photo/Richard Drew)
Slivergate CEO Alan Lane, second from right, is applauded as he rings the New York Stock Exchange opening bell before his bank's IPO begins trading, Thursday, Nov. 7, 2019. (AP Photo/Richard Drew) (ASSOCIATED PRESS)

Silvergate became a regional bank in 1996, but it wasn’t until 2014 that CEO Alan Lane chose for the company to begin servicing crypto clients like the now-bankrupt Genesis.

The company carved out a niche for itself by giving banking access to a growing number of crypto startups. Those offerings evolved into the SEN, where 24/7 operating crypto depositors could make U.S. dollar transfers and loans outside traditional banking hours.

Silvergate held $1.8 billion in total deposits and $2 billion in assets at the end of its 2018 fourth quarter. By 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 by the end of last year's fourth quarter.

With that drop in deposits, Silvergate’s capital relative to its assets shrank by half. This leverage ratio fell from 10.7% in its third quarter to 5.3%, a level of specific concern for banks with regulators having reason to step in for any U.S. bank below 5%.

Silvergate's liquidation raises further questions about whether U.S. banks will shy away from the digital asset industry, constraining access for crypto firms.

David Hollerith is a reporter for Yahoo Finance. Follow him on Twitter @DSHollers

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