Silvergate may be poorly capitalized, reevaluating strategy in light of ‘regulatory challenges’

Silvergate Capital Corporation told the U.S. Securities and Exchange Commission that it may be “less than well-capitalized” and said it was “reevaluating its business” in a filing with the agency. Shares plummeted after the close.

Silvergate, a large bank for fintech and crypto, said it would not be able to file its annual financial report on time. It noted that it expected to “record further losses related to the other-than-temporary impairment on the securities portfolio.”

“The company is currently in the process of reevaluating its businesses and strategies in light of the business and regulatory challenges it currently faces,” Silvergate said.  It also told the SEC it could not file its annual financial report on time because it needed more time for analysis, auditing and to “record journal entries related to subsequent events.” 

Silvergate said it does not think it can complete all the information required by March 16 for the report due for the fiscal year that ended on Dec. 31.

Shares fall

Shares in the crypto-friendly bank traded down after hours, dipping over 30% to $9.10 by 5:45 p.m. EST, according to TradingView data. Shares have been falling since the beginning of the year, as links to the collapsed FTX exchange and a run on deposits in the fourth quarter damaged the bank’s reputation. 

SI chart by TradingView

KBW analysts led by Michael Perito downgraded the stock to market perform from outperform this week, citing “increasingly limited visibility.” 

“Our market perform rating reflects increased patience, particularly after the bounce back in the shares off the lows of nearly $10,” the analysts said. The expected 10-K “could possibly include some incremental year-end commentary.” 

Silvergate remains one of the most shorted stocks on Wall Street, according to NYSE data via MarketWatch. Around 71% of outstanding shares were sold short as of Feb. 15.

Moody’s said on Feb. 17 that the bank was well capitalized, although it faced “the potential for further unanticipated shocks to erode capital given elevated regulatory and legal risks and constrained profitability.”

“The company is also facing challenges in preserving its funding and liquidity profile as it looks to reduce its reliance on brokered deposits and Federal Home Loan Bank funding,” Moody’s wrote. “In addition, continued large outflows of deposits from crypto centric firms could further adversely impact the bank’s financial condition.”