Moody’s downgrades Silvergate Bank rating

Moody’s downgraded Silvergate Bank’s rating from ‘Ba3’ to ‘B2’ following a reduction in the baseline credit assessment of the financial institution. This is reported by The Block.

Experts attributed the decision to a material decline in capital after a loss of $1.05 billion for the fourth quarter of 2022.

In the latest reporting period, the bank faced an outflow of deposits and took a number of steps to maintain liquidity. The company initially resorted to wholesale funding, and then to selling debt securities.

The deteriorating operating environment was underscored by the collapse of FTX, which had been a client of the bank.

In November, Silvergate said that on its trading platform less than 10% of its deposits were placed. The bank also disclosed the volume of client deposits on accounts going through the BlockFi platform’s bankruptcy proceedings — they did not exceed $20 million.

“Even with a staff reduction of about 40%, given the substantial decline in crypto firms’ deposits, we expect profitability to be seriously undermined in the coming quarters,” Moody’s says in the report.

Analysts note that Silvergate remains well capitalised. The situation could be altered by elevated regulatory and legal risks, as well as limited profitability.

The company is also facing liquidity and funding-access challenges as it seeks to reduce dependence on Federal Home Loan Banks, analysts noted.

In February, Citadel Securities and Susquehanna Advisors Group acquired, respectively, 7.5% and 5.5% stakes in Silvergate’s equity.

Bloomberg previously reported that the U.S. Department of Justice’s fraud section is investigating Silvergate’s deals with the cryptocurrency exchange FTX and the related hedge fund Alameda Research.