Silvergate gets more bad news as Moody’s slashes its ratings

The beleaguered bank was allegedly moving money between FTX and Alameda; then it sold debt at a discount and sacked employees after a bank run.

Things seem to be going from grim to grimmer at Silvergate Bank, with a hit to its Moody’s rating and a selloff by Ark Invest. The bank already experienced a run and has been tied to the FTX collapse.

Ark Invest, the investment vehicle of Cathy Wood, sold off more than 400,000 shares of parent company Silvergate Capital, worth $4.3 million on Jan. 6, leaving it with a mere 4,000 shares, according to various media reports. Those shares lost 43% of their value the previous day.

Moody’s Investors Service also reacted to the situation at the bank, downgrading its ratings of Silvergate Capital and the bank. The bank’s long-term deposit rating was downgraded from Baa2 (“lower-medium grade”) to Ba1 (“junk”) and its long-term issuer rating from Ba2 to B1 (both “junk”), with a negative outlook for the both organizations.

Moody’s attributed its decision to falling deposits, losses from securities sales to meet liquidity needs and workforce layoffs. Moody’s vice president Sadia Nabi said in a statement:

“Almost all of the bank’s deposits continue to be from crypto currency centric institutions, and while the bank currently has adequate liquidity and capital, continued large outf[l]ows of these deposits would further adversely impact the bank’s f[i]nancial condition.”

Silvergate Bank lost $718 million as it liquidated debt to cover $8.1 billion in withdrawals, according to reports on Jan. 5. It also laid off 40% of its workforce, about 200 people. In addition, crypto-related deposits were down 68% in the fourth quarter of 2022.

„Moody’s downgrades Silvergate Bank’s long term deposit rating to Ba1, outlook negative“ @MoodysInvSvc $SI

— Richard Christopher Whalen (@rcwhalen) January 6, 2023

The bank had come under the scrutiny of legislators after allegations that it facilitated transfers between FTX and its sister-company Alameda Research. Three senators headed by Senator Elizabeth Warren sent a letter to Silvergate CEO Alan Lane Dec. 6 asking for an explanation of the allegations. On Dec 16, FTX investors filed a class action suit against Lane, the bank and Silvergate Capital over the same allegations.