Just like other firms, the collapse of FTX greatly affected Silvergate as well. As per a recent update, the bank had to sell its assets at a lower cost to cover up some major losses. These were later on used to cover approximately $8.1 billion in withdrawals. All crypto-related withdrawals experienced a decline of 68%in the fourth quarter of 2022. In an effort to satisfy the great number of withdrawals, Silvergate had to liquidate the debt it held on its balance sheet. The loss of approximately $718 million as a result of the bank selling its debt was far greater than its profit since 2013.
Silvergate survives such a loss mainly because it was structured in a different way than other banks. The bank sold its traditional banking operations, including some of its branches. The main reason to do so was to focus on the provision of bank accounts to both crypto exchanges and investors. The stock of Silvergate has been down by almost 70% over the course of the previous three months. As of now, the shares of the bank are heavily shorted as well.
In addition, Silvergate mentioned that the withdrawals resulted from the loss of confidence of investors. Deposits in the bank managed to experience a low of approximately $3.5 billion in the fourth quarter of 2022. Similarly, deposits rose to almost $3.8 billion by the end of the quarter.
Silvergate Lays Off 40% of Employees
Based on the higher sell-off, Silvergate had to dismiss around 40%, or 200, of its employees. The harsh decision was made in an effort to survive an already difficult environment. At the same, the bank even scrapped its plans of launching its own digital currency. As a result of such a decision, the bank had to write off its expenses worth $196 billion. The amount was meant to be used for buying Diem Association from Facebook. It was built by Facebook in a failed effort to start a crypto payments network.
On the other hand, the shares of the bank also witnessed a downfall. They lost a whopping total of 88% previously in 2022. Keeping that in mind, the shares were also down by 40% in premarket trading. Despite the strict decisions being put into effect, Silvergate stated that it has not changed its mission.