Two major financial institutions have downgraded Silvergate Capital (SI), a bank that works with cryptocurrency firms, after it disclosed a significant loss and stated that it had delayed its annual report.
JPMorgan downgraded the stock from “Neutral” to “Underweight” and did not provide a price target. Canaccord Genuity also downgraded the stock from “Buy” to “Hold,” with a $9 price objective instead of $25.
The ratings changed after Silvergate said it wasn’t sure if it could stay operational and that it had accounting problems that delayed its 10-K report for 2022. The bank also reported that it had lost $886 million by selling some securities in the fourth quarter of 2022, which made its net income negative by $842 million and lowered its tangible book value (TBV) by more than half to $12.93.
Silvergate’s stock price plunged 47% to $7.18 before the market started on Wednesday. The bank’s issues also impacted some of its crypto clients, including Coinbase, which said that it was shifting its institutional clientele from Silvergate to Signature Bank. It has also announced that it would stop processing transactions to or from Silvergate.
Additionally, the Justice Department is looking into the bank’s link with FTX, one of the world’s major crypto exchanges. The probe was sparked by FTX’s parent firm Alameda Research’s bankruptcy filing in November 2022, which disclosed that FTX had borrowed $1 billion from Silvergate through its Silvergate Exchange Network (SEN) Leverage program.
Silvergate has stated that it has no outstanding loans or investments in FTX and that it does not use FTX as a custodian for its SEN Leverage loans. However, the bank has stated that it has exposure to FTX through deposits from FTX and related companies.
Silvergate also stated that it had received queries about its transactions with FTX and other crypto firms from congressional committees, banking authorities, and the Justice Department.
