Crypto-focused bank Silvergate plans to pull out after FTX hit

March 8 (Reuters) – Crypto-focused bank Silvergate Capital Corp (SI.N) said on Wednesday it planned to halt operations and voluntarily liquidate after suffering losses following the collapse drama from crypto exchange FTX, causing its shares to plummet 35% in after-hours trading.

The decision to close the bank comes after the company warned last week that it was assessing its ability to operate as a going concern, revealing that it had sold additional debt securities this year at a loss and that further losses would mean the bank could be “less than well capitalized.

The disastrous result of Silvergate, based in La Jolla, Calif., one of the crypto industry’s favorite banks, shows the extent of the impact on the digital asset industry of the fall of FTX which has filed for bankruptcy in November after failing to cover customer withdrawals.

In a statement, Silvergate said the decision to close its bank was “the best course of action” in light of “recent industry and regulatory developments.” Its liquidation and liquidation plan includes the full repayment of deposits, the bank added.

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Silvergate reported a $1 billion loss in the fourth quarter as investors rushed to withdraw more than $8 billion in deposits.

Several of the bank’s partners, including leading companies like Coinbase Global Inc (COIN.O) and Galaxy Digital, severed ties with Silvergate last week.

Silvergate has retained Centerview Partners LLC as financial advisor and Cravath, Swaine & Moore LLP as legal advisor, the bank said in a statement.

Founded in 1988, Silvergate ventured into crypto in 2013. The bank had also operated a mortgage warehouse business, but announced in December that it would end that division, citing rising interest rates. interest and reduced mortgage loan volumes.

A representation of bitcoin is seen in an illustrative photo taken June 23, 2017. REUTERS/Benoit Tessier/File Photo

Last week, Silvergate shut down the Silvergate Exchange Network, its crypto-payments network and one of its most popular offerings. This network enabled round-the-clock transfers between investors and crypto exchanges, unlike traditional bank transfers, which can often take days to settle.

Although the risks of contagion are minimal, given that Silvergate has said it will reimburse depositors and has performing loans, the loss of the Silvergate Exchange Network is disappointing, said Ram Ahluwalia, managing director of Lumida Wealth, an investment advisor specializing in digital. assets.

“It’s more of a strategic loss of crypto-critical infrastructure,” he said.

The Federal Deposit Insurance Corp (FDIC) declined to comment Wednesday when asked about the bank’s failure beyond saying it does not regulate the bank or the holding company. Bloomberg reported earlier that the FDIC discussed with Silvergate ways to avoid the shutdown.

Federal prosecutors in Washington are investigating the company and its dealings with FTX and trading company Alameda Research. In January, three US senators asked Silvergate for details about its risk management and FTX.

In a statement, the California Department of Financial Protection and Innovation, which oversaw Silvergate under a state charter, said it was evaluating the bank’s compliance with financial laws, as well as obligations safety and soundness, and was working with its relevant federal counterparts.

Over $1 trillion in value was wiped out of the crypto sector in 2022, with rising interest rates heightening fears of an economic slowdown.

After rapid growth in 2020 and 2021, bitcoin – by far the most popular digital currency – fell over 60% last year, putting pressure on the digital asset industry.

Reporting by Hannah Lang in Washington and Anirban Chakroborti in Bangalore; Additional reporting by Manya Saini in Bengaluru Editing by Maju Samuel and Matthew Lewis

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