Silvergate reveals depleted deposits, significant layoffs, and impairment charges
Silvergate Capital, a California, US-based provider of financial infrastructure solutions to the digital asset industry, has released its preliminary financial results for Q4 2022 that feature a run on deposits, impairment charges, layoffs, and product downsizing.
The market responded to the news with an over 40% drop in the company share value.
Silvergate is “taking decisive action”
“The digital asset industry has undergone a transformational shift, with significant over-leverage in the industry leading to several high-profile bankruptcies. These dynamics have sparked a crisis of confidence across the ecosystem and led many industry participants to shift to a ‘risk off’ position across digital asset trading platforms,” Silvergate defends itself.
The ill-fated FTX was among its customers.
Silvergate’s total deposits from digital asset customers declined to $3.8 billion in the quarter, compared to $11.9 billion the previous quarter.
Average deposits from digital asset customers declined to $7.3 billion during the fourth quarter of 2022, compared to $12 billion in Q3 2022.
As of 31 December 2022, approximately $150 million of the deposits were from customers that have filed for bankruptcy.
“As Silvergate prepares for what it expects will be a sustained period of transformation, it is taking several actions to help ensure the business is resilient, including recalibrating its expense base and evaluating its product portfolio and customer relationships going forward,” the company says.
Among these measures is the considerable reduction in workforce – 200 people (comprising 40% of the headcount) are being laid off. The company explains that in 2022, it increased employee headcount “at a rapid rate in an effort to keep up with its growing business and serve its customers”. The announced employee downsizing is “to account for the economic realities”, with the associated costs of around $8 million.
On the product side, Silvergate exited its mortgage warehouse lending product in Q4 2022, incurring a restructuring charge of approximately $4 million. Further “streamlining” of the product portfolio is underway.
Also, Silvergate is taking an impairment charge of $196 million in Q4 2022 related to the technology assets purchased from Meta/Diem Group last year. “Given the significant changes in the digital asset industry landscape, this charge reflects the company’s belief that the launch of a blockchain-based payment solution by Silvergate is no longer imminent,” it explains.
“While Silvergate is taking decisive action to navigate the current environment, its mission has not changed,” it states.
“Silvergate has purpose built its business to support customers not only during periods of growth but also in periods of volatility – that is, its business is designed to accommodate deposit inflows and outflows under a range of market conditions. Despite significant industry turmoil, Silvergate stands ready to support its digital asset customers.”
