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Crypto Bank Silvergate Issues “Going Concern” Warning, Says Q4 Financials with $1 Billion Loss Were Fake, Loss Was Even Bigger, Frets about “Regulatory Capital Ratios”

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Publié le 02 mars 2023
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It just keeps getting funnier with this crypto stuff. Shares crush dip buyers after hours.

By Wolf Richter for WOLF STREET.

Silvergate Capital, a small bank holding company that owns crypto bank Silvergate Bank, disclosed today after hours in an SEC filing:

  1. That it would restate its financial statements for 2022.
  2. That the shocker net loss of $1.05 billion for Q4, disclosed on January 17, would even be a bigger loss.
  3. That it was unable to file its annual report (10-K) by the deadline, March 1, and even after the 15-day extension, because it “requires additional time to perform analysis, record journal entries related to subsequent events and to complete management’s evaluation of internal controls over financial reporting.”
  4. That it sold even more securities, with even bigger losses, in order to repay its loans from the Federal Home Loan Bank of San Francisco.
  5. That “these additional losses will negatively impact the regulatory capital ratios” and “could result in the Company and the Bank being less than well-capitalized.”
  6. That it “is evaluating the impact that these subsequent events have on its ability to continue as a going concern” for the next 12 months.
  7. And that it “is currently in the process of reevaluating its businesses and strategies in light of the business and regulatory challenges it currently faces.”

Oh dude.

“Evaluation of internal controls over financial reporting” is not what you want to hear after you dip-bought the shares after they’d collapsed. It speaks of funny accounting and leaves everything up to your imagination.

You also don’t want to hear “will negatively impact the regulatory capital ratios,” and you never-ever want to hear “less than well-capitalized” – a key term for the FDIC – because you can imagine that the FDIC is getting nervous and might swoop in one Friday evening and take over Silvergate Capital, the bank holding company, to “resolve” it, thereby automatically bailing in you, the hapless stockholder.

You also don’t want to hear “reevaluating its businesses and strategies in light of the business and regulatory challenges it currently faces.”

These “regulatory challenges” refer to it being investigated by the Justice Department’s fraud section, according to Bloomberg earlier, and being hounded by Senator Elizabeth Warren and other lawmakers over of its relationship with FTX and Alameda Research, which collapsed amid a huge mess into bankruptcy.

Short sellers are all over it, sending letters to Silvergate’s auditors Crowe LLP and to regulators, that, according to Bloomberg, detail a laundry list of alleged misconduct, including money laundering.

If you caught Silvergate Capital [SI] on the dip, by about right now you realize that your fingers got cut off.

Silvergate is one of the many shining heroes in my pantheon of Imploded Stocks. In after-hours trading today, its shares plunged another 31%, to $9.24, but you can barely see today’s plunge on the chart because it has already collapsed so far. It’s down 96% from the consensual-hallucination peak in November 2021 (price data via YCharts):

Tiny Silvergate Bank became a crypto bank and then ballooned. It didn’t lend to crypto platforms, but it took their US dollar deposits, billions of dollars of them. With this cash, it bought Treasury securities and earned interest. Sounded like a low-risk approach.

But when its customers, crypto platforms such as FTX, began to collapse in the second half last year, they withdrew their deposits from Silvergate, triggering a massive bank run, pulling out $7.2 billion in Q3 and Q4, over half of its total deposits.

In order to be able to repay these depositors their $7.2 billion that they withdrew, it started selling Treasury securities and it borrowed in the wholesale market by selling FDIC-insured brokered CDs and by borrowing from the Federal Home Loan Bank of San Francisco (Silvergate is a California company).

The Treasury sales occurred as yields were shooting higher, and it lost money on the sales, and given that it would have to sell more Treasuries at losses, it marked to market more Treasuries it would have to sell at a loss. And now it sold even more Treasuries to pay off the loans received from the San Francisco FHLB.  All in all, in Q4, when it accounted for all this, it lost over $1 billion.

It announced the preliminary results on January 5, and we walked through the details, and it reported the actual results – now reduced to fake results – on January 17.

And folks back then thought that was it, that the bad news was out, and they bought the shares on the dip. And the shares nearly doubled, from $11.55 after the plunge following the first disclosure to $22.32 on February 15, along with all the other crazy stuff that doubled or tripled, the assorted penny stocks and bankruptcy equities out there. So now, this evening, they’re suddenly at $9.24.

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