Silvergate Bank, a US financial institution specializing in digital assets, is facing a crisis. The aftermath of the FTX debacle has burdened the crypto bank with billions in losses, and the company is currently conducting financial controls to assess its future direction.
According to an SEC filing, Silvergate is reviewing regulatory inquiries and responding to information requests from its registered audit firm. The financial institution also confirmed an investigation by the US Department of Justice due to its involvement in the FTX scandal.
FTX collapse leads to Silvergate's downfall
Silvergate Bank was one of the first US financial institutions to specialize in digital assets. The bank offers a range of services to its customers, including deposit accounts, transfers, and securities lending. Its clientele includes a broad spectrum of companies, such as exchanges, trading firms, and institutional investors. However, the bank has now issued a warning that losses related to its securities portfolio, among other factors, could impair its future operations. Furthermore, the bank is currently under investigation for misconduct, including money laundering.
The catalyst for Silvergate's troubles was its dealings with FTX and trading firm Alameda Research. Following the debacle, customer withdrawals exceeding USD 8 billion crippled the crypto bank in the last quarter. The bank incurred losses in the high triple-digit million range and laid off 200 employees (40% of its workforce) as a result. The bank's entire net income from the past two decades was wiped out in a single quarter.
Delay of the annual report
According to securities regulations, companies the size of Silvergate are required to file a comprehensive annual report within 60 days of the end of their fiscal year. The report must include audited financial statements and a letter affirming that the results were prepared in accordance with accounting standards. Additionally, the CEO and CFO must provide written confirmation of the report's accuracy.
However, Silvergate was unable to meet this week's deadline. By filing an NT 10-K, the bank has bought itself an additional 15 days to submit the annual report, along with an explanation for the delay. Not a positive sign for Silvergate.
"The Company sold additional debt securities in January and February 2023 and expects to record further losses related to the other-than-temporary impairment on the securities portfolio. These additional losses will negatively impact the regulatory capital ratios of the Company and the Company's wholly owned subsidiary, Silvergate Bank (the "Bank"), and could result in the Company and the Bank being less than well-capitalized." - Silvergate SEC filing