Silvergate (SI) stock crashes 40% in premarket as FTX collapse impacts bank

Silvergate Capital Corp (NYSE: SI) had a run on its accounts when the cryptocurrency exchange FTX went bankrupt, causing the bank to liquidate assets at a significant loss to cover customer withdrawals of almost $8.1 billion.

Now, premarket quotes show Silvergate stock down at -$8.65 (-39.41%), with SI briefly touching a premarket low of $11.6.

Silvergate stock premarket. Source: Nasdaq

Notably, the stock was trading at $21.95 at the market closing on Wednesday, January 4, rallying as much as 27% but the latest news has had a significant influence on the stock.

Silvergate stock 1-year chart. Source: TradingView

According to an early release of certain quarterly figures by the bank, cryptocurrency-related deposits dropped by 68% during the last quarter. In order for Silvergate to be able to meet the withdrawals, the company liquidated debt that was held on its balance sheet. The bank’s overall profits since at least 2013 are dwarfed by the loss of $718 million that it incurred while selling the debt.

200 Silvergate employees to be laid off

The bank has announced that it would reduce the number of businesses it operates, in addition to laying off around 40% of its workforce, or approximately 200 employees. It scrapped a plan to build its own digital currency and wrote off the $196 million it spent on the technology that Facebook had developed in its unsuccessful effort to start a crypto-based payments network.

Silvergate provides services to businesses involved in the cryptocurrency industry by accepting deposits from them and running a network that connects investors to cryptocurrency exchanges. Approximately one billion dollars of the bank’s deposits were accounted for by FTX and other entities owned by the institution’s founder, Sam Bankman-Fried.

“While Silvergate is taking decisive action to navigate the current environment, its mission has not changed,” the bank said. “Silvergate believes in the digital asset industry.”

The fall of the cryptocurrency market has brought into doubt the feasibility of Silvergate’s business model, which has been the subject of intense investigation because of its link with FTX. At the beginning of this week, a committee of federal authorities issued a warning to banks, advising them not to have an excessive amount of exposure to the cryptocurrency market. 

The stock of Silvergate has dropped by more than 70% over the course of the last three months, and there is significant short interest in the company’s shares. According to S3 Partners, the trade has been a lucrative one, with shorts increasing by more than $400 million over the last year.

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Source: https://finbold.com/silvergate-si-stock-crashes-40-in-premarket-as-ftx-collapse-impacts-bank/