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Silvergate Capital (NYSE: SI) stock fell 43% at the end of Thursday’s trading, after crypto-focused banks said they are reducing headcount by approximately 40%, will streamline their product portfolio, re-evaluate customer relationships and assume a $196 charge millions as customers withdrew deposits in the fourth quarter.
The company also said it has started utilizing wholesale financing due to customer withdrawals. So, in order to accommodate sustained lower deposit levels and maintain a highly liquid balance sheet, the company sold debt for cash proceeds, he said.
The crypto-focused bank took action after the collapse of the FTX cryptocurrency exacerbated volatility in crypto markets and made investors more cautious of the asset class.
“In response to the rapid changes in the digital asset industry during the fourth quarter, we took appropriate steps to ensure we maintained cash liquidity to satisfy potential deposit outflows and currently maintain a cash position in excess of our related digital asset deposits,” said CEO Alan Lane.
The company will cut about 200 jobs, or 40% of its headcount, and estimates an $8 million charge for costs associated with the cuts.
After performing an impairment review of the company’s intangible assets, Silvergate (SI) will assume a $196 million fourth-quarter impairment charge related to developed technology assets acquired from Diem Group
The company now believes that the launch of a blockchain-based payment solution is no longer imminent, although it continues to look for opportunities to derive value from Diem technology assets. There are still people working on the project, Lane said on a conference call, although “there are significant headwinds to releasing something in the near future, so we’ll have to look at the expenses that we’re incurring.”
The company exited its warehouse mortgage loan product in Q4 2022 and will assume a $4 million restructuring charge in Q4 2022, primarily related to severance and employee benefits. It will also simplify your product portfolio in the coming weeks.
The Silvergate Exchange Network Platform (SEN) continues to operate 24/7 with average daily volume totaling $1.3 billion in Q4 versus $1.2 billion in Q3. As of December 31, 2022, SEN Leverage’s commitments have fallen to US$1.1 billion from US$1.5 billion as of September 30. The company reports zero losses and no forced liquidations for SEN Leverage loans.
The fourth quarter 2022 average outstanding balance of SEN Leverage loans was $328 million versus $308 million in the third quarter.
Silvergate (SI) total deposits from digital asset customers dropped to $3.8 billion as of Dec. 31 from $11.9 billion as of Sept. 30, 2022. As of Dec. Silvergate were from clients who had filed for bankruptcy.
The 70% reduction in digital asset customer deposits resulted from “a much more widespread deleveraging than [crypto] ecosystem that obviously culminated in the collapse of the FTX (FTT-USD)”, explained Lane.
Cash and cash equivalents as of December 31, 2022 was approximately $4.6 billion plus digital asset customer deposits.
During the fourth quarter, Silvergate (SI) sold $5.2 billion of debt securities for cash proceeds, resulting in a loss on the sale of securities and related derivatives of $718 million during the fourth quarter of 2022.
As of December 31, 2022, the Company held $5.6 billion of total fair value debt securities, all guaranteed by the U.S. government or agency and available for sale, which include unrealized losses of approximately $0. .3 billion. Silvergate (SI) expects to sell a portion of these securities in early 2023 to reduce wholesale borrowing, which will result in the recognition of a fourth quarter impairment charge related to the unrealized loss on these securities expected to be sold. .
In wholesale financing, the company held $2.4 billion in short-term certificates of deposit and $4.3 billion in short-term advances from the Federal Home Loan Bank as of December 31, 2022.
With reporting by Max Gottlich
Last month, S&P Global said that rising crypto deposit outflows at banks is a cause for concern.
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