In an SEC filing last night, Silvergate Capital said it would be unable to file its annual report by the delayed date of March 16. Despite forewarning of a loss at the bank subsidiary of $948 million for 2022, it said there had been additional events after the year’s end, so the company is evaluating “its ability to continue as a going concern” through to the end of 2023. Its stock price sank more than 45% in pre-trading to $7.42.
Update: Coinbase stops using Silvergate for payments
Last week, we noted two joint warnings by the Federal Reserve, FDIC and OCC about crypto risks for banks. After the first warning, Silvergate revealed its near billion-dollar loss. The second warning was a week ago.
One of the post-yearend events that Silvergate referred to was the need to repay in full a loan from the Federal Home Loan Bank (FHLB) of San Francisco.
At the start of February, several senators raised concerns that Silvergate had secured a $4.3 billion loan from the FHLB. They highlighted that the move introduced crypto risk into the main banking system.
“If Silvergate were to fail – as have banks facing a fraction of the withdrawal rates Silvergate has faced – FHLB could ‘assert statutory lien priority on other assets – essentially putting the Home Loan bank ahead of all other creditors,’ including the Federal Deposit Insurance Company’s (FDIC) deposit insurance fund,” wrote the Senators, following an earlier letter sent to the bank.
A large proportion of the previously reported Silvergate loss was on the sale of securities to meet deposit withdrawals by crypto clients. Last night it warned of additional securities sales post-year-end and even more losses that would impact its regulatory capital ratios resulting in the “Bank being less than well-capitalized.”
Apart from the financial stress, it said its accountants had requested more detailed information about “inquiries and investigations”. It was reported that the Department of Justice was investigating Silvergate’s role in the FTX/Alameda collapse. That’s partly because FTX instructed the crypto exchange’s clients to deposit funds at sister firm Alameda’s Silvergate bank account.