Silvergate Capital to liquidate bank amid regulatory collapse
Silvergate Capital, a key lender to the cryptocurrency industry, has announced the liquidation of its business and the liquidation of its bank. The company is one of the two primary banks for crypto firms, along with Signature Bank. The liquidation announcement sent the stock plunging more than 36% in after-market trading.
Reasons for the liquidation
Silvergate recently cited industry and regulatory developments as the reason for winding up the bank. The company believes that an orderly liquidation of the banking business and a voluntary liquidation of the bank is the best way forward. Silvergate has just over $11 billion in assets compared to over $114 billion at Signature Bank.
Liquidation plan
According to the liquidation plan shared by the company, all deposits will be refunded in full. However, the company has not specified how it plans to resolve claims against the business. Centerview Partners will act as Silvergate’s financial advisor and Cravath, Swaine & Moore will provide legal services.
Impact on customers
The liquidation comes less than a week after Silvergate ended its payments platform known as the Silvergate Exchange Network (SEN), which was considered one of its core offerings. The company clarified that all other deposit-related services will remain operational when the company liquidates. Customers will be notified if further changes occur.
Reasons for the delay in filing the annual 10-K
Silvergate said it would delay filing its annual 10-K for 2022 while it sorted out the “viability” of the business. The delayed filing was due in part to an impending regulatory crackdown, including an investigation already underway by the Justice Department, congressional inquiries and investigations by bank regulators, which include the Federal Reserve and the California Department of Financial Protection and Innovation.
Struggling for months
Silvergate has struggled for months. In addition to laying off 40% of its workforce in January, the firm reported a net loss of nearly $1 billion in the fourth quarter following a rush of departures late last year that saw client deposits plunge 68% to $3.8 billion. To cover the withdrawals, Silvergate had to sell $5.2 billion in debt securities.
The securities companies’ holdings in Silvergate
The investment companies Citadel Securities and BlackRock recently took large stakes in Silvergate, acquiring 5.5% and 7% respectively.
The liquidation of Silvergate Capital is a significant development that has significant implications for the cryptocurrency industry. For now, the impact of this liquidation is unclear, but it is expected to pose serious challenges to crypto firms and investors. Furthermore, it could potentially trigger increased regulatory supervision and scrutiny of the entire industry.
