Silvergate Capital to Wind Down Operations and Liquidate Bank

Written by Joy Rice

On Wednesday, Silvergate Capital announced that it will wind down its operations and liquidate its bank. This decision caused a significant drop in the company’s stock value, which fell by over 36% in after-hours trading.

As one of the primary banks for cryptocurrency companies, alongside New York-based Signature Bank, Silvergate has just over $11 billion in assets compared to Signature’s over $114 billion. Notably, bankrupt crypto exchange FTX was a significant customer of Silvergate.

Silvergate cited recent industry and regulatory developments as the reason for the orderly wind-down of its bank operations and voluntary liquidation. However, the company did not clarify how it plans to handle claims against its business.

Centerview Partners will act as Silvergate’s financial advisor, while Cravath, Swaine & Moore will provide legal services.

Silvergate’s liquidation comes less than a week after discontinuing its payments platform known as the Silvergate Exchange Network (SEN), which was considered one of its core offerings. Despite this, all other deposit-related services remain operational as the company winds down. Customers will be notified of any further changes.

Last week, Silvergate delayed the filing of its annual 10-K for 2022 while it assessed the viability of its business. The company attributed the delay to an imminent regulatory crackdown, including an ongoing probe by the Department of Justice, as well as inquiries from its banking regulators, which include the Federal Reserve and the California Department of Financial Protection and Innovation.

After Silvergate warned that it was uncertain about its ability to remain in business, cryptocurrency companies like Coinbase and Galaxy Digital raced to cut ties with the bank.

Silvergate has been struggling for months, with the firm reporting a nearly $1 billion net loss in the fourth quarter of 2022 after a rush for the exits at the end of last year caused customer deposits to plummet by 68% to $3.8 billion. To cover the withdrawals, Silvergate had to sell $5.2 billion in debt securities.

The firm also drew attention from lawmakers like Sen. Elizabeth Warren, D-Mass., who criticized the decision to turn to the Federal Home Loan Bank for an additional $4.3 billion loan, stating that it “further introduced crypto market risk into the traditional banking system.”

Despite its struggles, investment firms Citadel Securities and BlackRock recently took major stakes in Silvergate, buying up 5.5% and 7%, respectively.

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