Things seem to be going from grim to grimmer at Silvergate Bank, with a hit to its Moody’s rating and a sell-off 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 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.
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.