No Surprise: Moody’s Downgrades Silvergate Bank

Rating service Moody’s has downgraded Silvergate Capital (NYSE:SI) following the revelation that deposits rapidly declined during Q4 of 2022, and the bank had to shore up its balance sheet. Moody’s downgraded the ratings of Silvergate Capital and its bank subsidiary Silvergate Bank, following the downgrade of the bank’s standalone Baseline Credit Assessment (BCA) to ba3 from ba1.

Silvergate Capital’s long-term issuer rating was downgraded to B1 from Ba2.

The bank’s long-term deposit rating was downgraded to Ba1 from Baa2, and its long-term issuer rating to B1 from Ba2.

Moody’s also downgraded the bank’s short-term deposit rating to Not Prime from Prime-2. Moody’s said the outlook is negative for the bank.

Moody’s noted that almost all of the bank’s deposits continue to be from cryptocurrency-centric firms, and while the bank currently has adequate liquidity and capital, continued large outflows of these deposits would further adversely impact the bank’s financial condition.

Moody’s believes that a ratings upgrade is not very likely in the next 12 to 18 months, but its outlook could return to stable if the legal risk declines.

The BCA could be downgraded again if regulatory and legal risks continue or if the bank’s leverage ratio declines further.

A deterioration in its liquidity profile, a reduction in cryptocurrency-related deposits, continued weak profitability, the departure of key management, or an increased risk appetite, could lead to a downgrade of the BCA.

Silvergate has been a leading chartered bank in the digital asset sector, providing services to crypto firms where other banks feared to operate. The crypto contagion that has gripped the digital asset industry topped off by the bankruptcy of FTX and rumblings of other digital asset firms considering the same, has harmed Silvergate’s operations.

On top of all of this, the recent joint statement by Federal bank regulators increased the regulatory risk of any bank providing services to crypto firms.

Shares in Silvergate have plummeted in recent days, dropping by over 40% yesterday. In pre-market trading, Silvergate is poised to decline further.

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