On the 5th of December, after Morgan Stanley downgraded Silverate’s stock rating, Silvergate Capital Corp, a crypto-friendly bank, dropped around 8.49% to $24.24. The reason behind Morgan Stanley, a New York-based bank, downgrading a crypto-friendly bank’s stock rating from equal weight to underweight is the weak Q3 performance, which was due to the collapse of FTX, which was once the biggest crypto exchange in the world and now is nothing.
According to the report from Barron’s, Morgan Stanley analysts outlined significant uncertainties surrounding the crypto bank’s digital deposits. And the crypto-friendly bank expected a 60% drop in deposit volume this quarter compared to the earlier one. The decrease in user deposits would significantly reduce the crypto-friendly bank’s net income and net interest margins.
Morgan Stanley maintains an earnings-per-share, EPS, estimate for Silvergate at around $1.58, which is higher than the reported $1.28 EPS last quarter. On a monthly note, the shares of Silvergate plummeted 52% from $50.96 to slightly above $24 today, as per data from Nasdaq.
However, Alan Lane, the CEO of Silveragate Capital Corp, issued a public letter, in which he accused short-sellers of spreading wrong information. The reason behind issuing this letter is to set the record straight during Morgan Stanley’s ratings downgrade. In the letter, Alan wrote that there has also been plenty of speculation and misinformation, which was spread by short sellers and other opportunists to capitalize on market uncertainty. He added that I wanted to take this opportunity to set the record straight about Silvergate’s role in the digital asset ecosystem. What we have always done, and continue to do to ensure our clients act by our robust risk management controls, Alan wrote.
Alan also assured customers that their deposits are backed by Silvergate’s strong balance sheet with ample liquidity. Alan claimed that in addition to cash, Silvergate can also borrow at the Federal Reserve Discount Window and the Federal Home Loan Bank.