After a bank run, the beleaguered bank allegedly moved money between FTX and Alameda, then sold debt at a discount and fired employees.
Silvergate Bank appears to be getting worse, with a downgrade from Moody’s and a selloff by Ark Invest. The bank has already seen a run and has been linked to the FTX collapse.
According to various media reports, Ark Invest, Cathy Wood’s investment vehicle, sold more than 400,000 shares of parent company Silvergate Capital worth $4.3 million on Jan. 6, leaving it with only 4,000 shares. Those shares had lost 43% of their value the day before.
Moody’s Investors Service also reacted to the bank’s situation by downgrading Silvergate Capital and the bank’s ratings. The bank’s long-term deposit rating was downgraded from Baa2 (“lower-medium grade”) to Ba1 (“junk”), and its long-term issuer rating was downgraded from Ba2 to B1 (both “junk”), both with a negative outlook.
Moody’s cited falling deposits, losses from securities sales to meet liquidity needs, and workforce layoffs as reasons for its decision. “Almost all of the bank’s deposits continue to be from crypto currency centric institutions,” said Moody’s vice president Sadia Nabi in a statement. “While the bank currently has adequate liquidity and capital, continued large outf[l]ows of these deposits would further adversely impact the bank’s f[i]nancial condition.”
According to reports on Jan. 5, Silvergate Bank lost $718 million as it liquidated debt to cover $8.1 billion in withdrawals. It also laid off 40% of its workforce, or approximately 200 employees. Furthermore, crypto-related deposits fell 68% in the fourth quarter of 2022.
Legislators were looking into the bank after allegations that it facilitated transfers between FTX and its sister company, Alameda Research. Three senators, led by Senator Elizabeth Warren, wrote to Silvergate CEO Alan Lane on December 6th, requesting an explanation for the allegations. On December 16, FTX investors filed a class action lawsuit against Lane, the bank, and Silvergate Capital alleging the same things.
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