Silvergate Loses Third Of Its Value After Revealing Bank Is Under Capitalized

Silvergate Capital (NYSE: SI) fell as much as 33% after hours on Wednesday after the cryptocurrency-focused bank announced that it will postpone filing its 2022 annual report on Form 10-K with the Securities and Exchange Commission due to further losses and regulatory scrutiny.

While the company is working hard to file its Form 10-K as quickly as possible, it does not plan to do so by the March 16 extension deadline.

“Although management of the Registrant has been working diligently to complete all of the required information for the Form 10-K, and a substantial part of such information has been completed as of this date, the Registrant requires additional time to perform analysis, record journal entries related to subsequent events and to complete management’s evaluation of internal controls over financial reporting,” the company said in its SEC filing noting the failure of making the annual report.

Silvergate also said it requires further time to allow its independent registered public accounting firm to conduct certain audit procedures, such as a review of unrecorded adjustments and an assessment of the effectiveness of the company’s internal control over financial reporting.

The crypto firm is also looking into pending regulatory inquiries and probes. It is assessing how these developments will affect its ability to continue as a going concern in the 12 months after its earnings release.

Last month, the firm released unaudited Q4 and 2022 earnings. But, after December 31, 2022, it sold further investment securities, principally to repay outstanding advances from the Federal Home Loan Bank of San Francisco.

In early January, Silvergate revealed that it had $4.3 billion in short-term Federal Home Loan Bank advances and approximately $4.6 billion in cash and cash equivalents at the end of 2022. This cash assisted the company in avoiding a deposit run following the failure of FTX.

Silvergate then sold further debt securities in January and February and expects to incur significant losses as a result of the securities portfolio’s other-than-temporary impairment.

“These additional losses will negatively impact the regulatory capital ratios of the Company and the Company’s wholly owned subsidiary, Silvergate Bank, and could result in the Company and the Bank being less than well-capitalized,” the company added.

Earlier, the company was in the crosshairs of the US Senate after a bipartisan group of senators, including Democrat Elizabeth Warren and Republicans Roger Marshall and John Kennedy, grilled Silvergate about whether it knew of FTX’s alleged misuse of customer cash.

The lawmakers claimed in a letter to CEO Alan Lane that the firm declined to fully answer related queries in December, citing limits on revealing “confidential supervisory information.”

The senators also noted in the letter that as Silvergate fell deeper into trouble in 2022, it turned to the Federal Home Loan Bank of San Francisco for a liquidity injection large enough to “stave off a further run on deposits.”

“By using the FHLB as its functional ‘lender of last resort,’ Silvergate has further introduced crypto market risk into the traditional banking system,” the lawmakers said, adding that if the crypto bank were to fail, 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 deposit insurance fund.

The SEC filing mishap adds to the crypto firm’s mounting regulatory concerns. According to persons familiar with the situation, US prosecutors in the Justice Department’s fraud unit are investigating Silvergate and its links with defunct crypto giants FTX and Alameda Research.

Silvergate is said to be “currently in the process of reevaluating its businesses and strategies in light of the business and regulatory challenges it currently faces.”

Silvergate Capital last traded at $13.53 on the NYSE, then fell as much as 33% in the after-trading hours.

Information for this briefing was found via Edgar, Seeking Alpha, and the sources mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.

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