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Silvergate Capital Corp (NYSE: SI) shares have plummeted 8.49% to $24.24 during Monday’s trading after Morgan Stanley slapped the stock with a rating downgrade.
Weak Q3 performance coupled with the FTX fallout is the primary reason behind the Wall Street bank’s decision to downgrade Silvergate's share rating from equal weight to underweight.
According to Barron’s, Morgan Stanley analysts outlined significant uncertainties surrounding the crypto bank’s digital deposits and expected a 60% drop in deposit volume this quarter compared to the previous one.
Reduced user deposits would significantly reduce Silvergate’s net income and net interest margins.
Morgan Stanley maintains an earnings-per-share (EPS) estimate for Silvergate at $1.58, significantly higher than the reported $1.28 EPS last quarter.
On a monthly note, Silvergate shares plunged 52% from $50.96 on November 7, 2022, to slightly above $24 today, per Nasdaq.
Silvergate CEO calls out ‘misinformation’
Accusing short-sellers of spreading wrong information, Alan Lane, CEO of Silverage Capital Corp, issued a public letter to “set the record straight” amid Morgan Stanely’s ratings downgrade.
“There has also been plenty of speculation–and misinformation–being spread by short sellers and other opportunists trying to capitalize on market uncertainty,” wrote Lane. “I wanted to take this opportunity to set the record straight about Silvergate’s role in the digital asset ecosystem and what we have always done, and continue to do, to ensure our customers act by our robust risk management controls.”
The Silvergate chief assured that customer deposits are backed by the company’s strong balance sheet with ample liquidity.
He also added that in addition to cash, Silvergate can also borrow at the Federal Home Loan Bank and Federal Reserve Discount Window, collateralizing its securities investment portfolio to process customer withdrawal requests.
Federal Home Loan Banks are 11 U.S. government-sponsored banks that provide liquidity to financial institutions. Federal Reserve Discount Window is a credit system to remove liquidity issues of financial institutions.
“While this has been a turbulent time in the digital asset industry, our customers’ deposits are, and have always been, safely held,” wrote Lane. “We intentionally carry cash and securities over our digital asset-related deposit liabilities.”