A once prosperous crypto-friendly bank, after experiencing the bankruptcy of its largest customer FTX and the run on the entire crypto industry, can still survive tenaciously after a huge loss of $949 million! Does this sound like a thrilling financial adventure, or just an unattainable dream?
Silvergate, the crypto-friendly bank in the United States, recently released its official financial report for 2022, and the numbers are staggering. However, what is more striking is that its stock has been heavily shorted, and people can't help but ask: Will Silvergate be the next bank to fall?
During the bank run, Silvergate's deposits plummeted from $11.9 billion to $3.8 billion, losing $8.1 billion in deposits in a short period of time! But the bank did not give up, but took quick action. It sold $5.2 billion in bonds in exchange for cash flow. Although this resulted in a loss of $718 million and the stock price fell to the issue price, Silvergate is still trying to survive.
So, in addition to layoffs and bond sales, what other tricks does Silvergate have? We can find some clues from its financial report. Silvergate has transferred a large amount of assets from securities available for sale to more liquid assets such as bank deposits and cash and cash equivalents, which is obviously to cope with possible liquidity crises.
Moreover, Silvergate also emphasized that its capital ratios are healthy. Although its Tier 1 leverage ratio has dropped significantly from more than 10% to 5.12%, it still meets the regulator's "well-capitalized" standards. This means that despite the heavy blow, Silvergate's financial situation is still relatively stable.
But some would say that Silvergate's $4.3 billion in FHB loans was its lifeline. However, this is not the case. This loan was only part of Silvergate's normal financing, and it was a tiny fraction of the total FHB loans. So, this cannot be seen as a bailout for Silvergate.
But what is worrying is that 53.24% of Silvergate’s shares are shorted! This makes people wonder if everyone thinks Silvergate is the next bank to go bankrupt?
However, from the perspective of Silvergate's balance sheet, its cash and cash equivalents and securities available for sale totaled $10.3 billion, which was enough to cover all its deposits of $6.2 billion. Moreover, its shareholders' equity also remained at a positive $600 million, and it was not insolvent. Even in the worst case, Silvergate is covered by the Federal Deposit Insurance Corporation of the United States, with a guaranteed limit of $250,000 per depositor.
So, after experiencing the severe run caused by the crypto industry, will Silvergate still regard itself as a crypto-friendly bank? Will this incident attract the attention of regulators and require higher liquidity ratios or stricter regulatory conditions? These are all issues that deserve our continued attention.
In the crypto world, which is full of unknowns and variables, Silvergate's experience undoubtedly provides us with a valuable lesson: no matter how hot the market is, risks always exist. How to seek opportunities in risks and how to survive in difficulties will be a question that everyone involved in the crypto world needs to think about.
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