Things seem to be going from bad to worse at Silvergate Bank, with its rating hit by Moody’s and a sale by Ark Invest. The bank had already suffered a run and has been linked to the collapse of FTX.
Ark Invest, Cathy Wood’s investment vehicle, sold more than 400,000 shares of parent company Silvergate Capital for $4.3 million on January 6, and se was left with just 4,000 shares, according to various media outlets. Those shares lost 43% of their value the day before.
Moody’s Investors Service also reacted to the bank’s situation, downgrading its ratings on Silvergate Capital and the bank. The bank’s long-term deposit rating was downgraded from Baa2 (“low-medium grade”) to Ba1 (“junk”) and its long-term issuer rating from Ba2 to B1 (both “junk”), with a negative outlook for both entities.
Moody’s attributed its decision to falling deposits, losses from selling securities to cover liquidity needs and layoffs. Moody’s vice chair Sadia Nabi said in a statement:
“Almost all of the bank’s deposits continue to come from cryptocurrency-focused institutions, and while the bank currently has adequate liquidity and capital, continued large outflows of these deposits would further negatively affect the bank’s financial condition.”
Silvergate Bank lost $718 million paying off debt to cover $8.1 billion in withdrawals, according to reports on January 5. He also fired 40% of his staff, about 200 people. Additionally, cryptocurrency-related deposits fell 68% in Q4 2022.
“Moody’s downgrades Silvergate Bank’s long term deposit rating to Ba1, outlook negative” @MoodysInvSvc $YES
—Richard Christopher Whalen (@rcwhalen) January 6, 2023
The bank had come under the scrutiny of lawmakers following allegations that it facilitated transfers between FTX and its sister company Alameda Research. Three senators led by Senator Elizabeth Warren sent a letter on December 6 to Silvergate CEO Alan Lane asking for an explanation of the allegations. On December 16, FTX investors filed a class action lawsuit against Lane, the bank, and Silvergate Capital over the same allegations.
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