Yves here. I must confess to not fallowing the cascading failures across crypto-land all that closely, save for the spectacular and instructive collapse of FTX. As most of you know, Silvergate offered dollar deposit services to many crypto exchanges, and also got out on the wild side by taking on crypto risk via products like offering collateralized loans against Bitcoin.
Readers may recall the ire over the fact that Silvergate borrowed $4.3 billion from the Federal Home Loan Bank of San Francisco. It was able to do so because it was originally a tiny mortgage bank….and one suspects did not ‘fess up to the FHLB about its huge change in business focus.
I can’t recall the last time a bank voluntarily liquidated, as opposed to failed or was sold. Given that it is in legal hot water (under DoJ investigation for fraud), no one with an operating brain cell would buy it, charitably assuming it had any remaining value. Silvergate says it has fully repaid the FHLB and will also return all deposits. One imagines this is to try to minimize liability while it is still possible to make the most important creditors whole.
Wolf Richter linked to the Silvergate press release announcing its intent to wind down. The statement that depositors will get all their dough must be reassuring…..but why is Silvergate still willing to take in more of those funds? See the note at the top of the website:
Separately, you can still poke around the site and get a heady dose of crypto triumphalism.
In a tersely worded press release this afternoon, Silvergate Capital, the holding company of crypto bank Silvergate Bank, announcedthat it would “wind down operations and voluntarily liquidate” Silvergate Bank “in an orderly manner and in accordance with applicable regulatory processes.”
This comes a day after Bloomberg News reported, based on its sources, that FDIC examiners were rummaging through the banks books and records at Silvergate Bank, and that FDIC officials have been in discussions with Silvergate management to figure out how to move forward.
So it seems, management has arrived at a decision on how to move forward.
On January 5, I’d said in a headline about Silvergate’s shocking filing that day, that “I’m waiting for the FDIC to show up.” I had to wait about two months.
In the announcement today, Silvergate said:
“In light of recent industry and regulatory developments, Silvergate believes that an orderly wind down of Bank operations and a voluntary liquidation of the Bank is the best path forward.
“The Bank’s wind down and liquidation plan includes full repayment of all deposits.
“The Company is also considering how best to resolve claims and preserve the residual value of its assets, including its proprietary technology and tax assets.”
The announcement of the final act for the bank comes just days after Silvergate Capital issued a “going concern” warning, on March 1, along with a slew of other bone-chilling items – bone-chilling for Silvergate’s investors and any remaining depositors with balances above FDIC deposit-insurance limits. It said:
It would be restating its financial statements and would show an even bigger loss than the $1 billion loss it booked for Q4; it would not be able to file its annual report by the deadline due to “management’s evaluation of internal controls over financial reporting”; these losses would “negatively impact the regulatory capital ratios” and “could result in the Company and the Bank being less than well-capitalized”; and it was “reevaluating its businesses and strategies in light of the business and regulatory challenges it currently faces.”
“Oh dude,” I moaned after I put that list together on March 1.
And so it seems, management completed the reevaluation of its businesses and decided to shut down and liquidate the bank.
But it did pay back the loans from the Federal Home Loan Bank. Part of the additional losses disclosed on March 1 come from the sales of additional Treasury securities to raise the funds to repay the $4.3 billion in short-term advances it had received from the Federal Home Loan Bank of San Francisco (Silvergate Capital is headquartered in California). Silvergate had disclosed the advances as part of its filing on January 5. The fact that the FHLB was lending $4.3 billion to a crypto bank had caused quite a ruckus. On March 2, the FHLB confirmed that these advances have been “fully repaid.” So that’s off the table.
Silvergate also said that it shut down its real-time payment system into the crypto world, Silvergate Exchange Network (SEN).
Silvergate announced on January 5 that it had scuttled its efforts to develop its own stablecoin, based on the Diem technology that it had acquired from Facebook, and wrote off $196 million, which was part of the $1 billion loss in Q4.
Silvergate has been under fire from regulators and from inquiries in Congress. And according to Bloomberg earlier is being investigated by the Justice Department’s fraud section.
In after-hours trading today, the shares kathoomphed another 44%, I mean, not that it matters anymore, to $2.76, down 99% from its crypto-crazed consensual-hallucination peak in November 2021, of $239. But that’s one of the ground rules in the crypto world, and for companies that want to ride up the consensual-hallucination of crypto: easy come, easy go (price data via YCharts):