Silvergate Reduces Headcount By 40%, Takes An Impairment Charge Of $196 Million

Key Points:

• As a result of consumers withdrawing deposits in Q4, Silvergate Capital announced it is taking a $196 million impairment charge, slashing its workforce by almost 40%, streamlining its product portfolio, and reevaluating its customer relationships.
• The bank added that it began using wholesale finance as a result of customer withdrawals.
• The cryptocurrency-focused bank took these actions after the crash of cryptocurrency FTX increased market volatility.

The bank with a concentration on cryptocurrencies, Silvergate Capital, announced on Thursday that it has laid off roughly 200 people, or 40% of its whole workforce.

As consumers withdrew deposits in Q4, the bank postponed its ambitions to introduce a digital currency and wrote off the $196 million associated with its purchase of Diem Association’s technology and assets from Meta.

Silvergate now thinks that the release of a blockchain-based payment solution is no longer imminent, but it will keep looking for ways to capitalize on the value of the Diem technology assets.

The company added that it began using wholesale funding as a result of consumer withdrawals. The company then liquidated debt instruments for cash considerations, it claimed, in order to handle persistent lower deposit levels and retain a highly liquid balance sheet.

After cryptocurrencies fell out of favor, the cryptocurrency-focused bank took these actions. Investors are now less trusting of the asset class as a result of FTX’s escalating volatility in the crypto markets. Silvergate CEO Alan Lane stated:

“In response to the rapid changes in the digital asset industry during the fourth quarter, we took commensurate steps to ensure that we were maintaining cash liquidity in order to satisfy potential deposit outflows, and we currently maintain a cash position in excess of our digital asset related deposits.”

Silvergate’s Exchange Network Platform continued to run despite the decline, averaging $1.3 billion in daily transaction activity in the fourth quarter of 2022, up from $1.2 billion in Q3.

SEN Leverage commitments decreased to $1.1 billion at December 31, 2022, from $1.5 billion at September 30. For SEN Leverage loans, the company claims no losses and no forced liquidations.

The company discontinued its mortgage warehouse lending product in Q4 2022, and in that same quarter, it incurred a $4 million restructuring charge, principally for severance and employee benefits. In the upcoming weeks, it will also streamline its product line.

However, it saw a withdrawal of about $8.1 billion in deposits for digital assets during the fourth quarter. Silvergate lost $718 million when it sold off $5.2 billion in debt instruments to offset the withdrawals.

As of December 31, 2022, the company held $4.3 billion in short-term Federal Home Loan Bank advances and $2.4 billion in short-term brokered certificates of deposit for wholesale funding.

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