Morgan Stanley Slashes Silvergate Capital’s Rating to Underweight

• The analysts predict that Silvergate’s digital deposits would be 60% lower in Q4 than in Q3.
• The company faces uncertainty regarding deposit flows in the near future as per analysts.

Morgan Stanley warned in a study published on Monday that Silvergate Capital (SI) faces a variety of risks due to the turmoil in the cryptocurrency industry after the bankruptcy of the crypto exchange FTX.

Wall Street bank team led by analyst Manan Gosalia slashed Silvergate shares ratings to underweight from equal weight but maintained its price objective of $24. Premarket trading saw a drop of 3%, sending the stock to $25.69. This follows a drop of more than 50% since the beginning of November.

After Effects of FTX Collapse

The analysts predict that Silvergate’s digital deposits would be 60% lower in the fourth quarter than in the third quarter, therefore the company faces severe uncertainty regarding deposit flows in the near future.

Banks’ net interest margins and net interest income are under threat when depositors pull their money, forcing the institution to turn to more expensive sources of funding like selling assets or increasing its wholesale borrowing rates. The statement continued by saying that FTX’s failure might increase litigation and headlines risk across the cryptocurrency industry.

Silvergate Capital (SI) CEO Alan Lane sent a public statement in an effort to “set the record straight” in response to “speculation – and misinformation” being propagated by short sellers and other opportunists seeking to gain on market instability.

Silvergate did have a large deposit connection with the defunct FTX exchange, but it does not seem that it is a creditor to the latter. Only a month ago, the bank revealed that roughly 10% of the $11.9 billion in digital asset deposits it had received were in FTX.

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