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Amid Silvergate Bank’s exposure to FTX, Goldman Sachs has cut down the price target and is expecting greater deposit outflows.
The contagion with the FTX collapse is spreading pretty fast and like wildfire. On Tuesday, November 15, the stock price of crypto bank Silvergate tanked by a staggering 17% slipping under $30.
This happened due to the bank’s purported exposure to the bankrupt crypto exchange FTX. Last week, crypto bank Silvergate said that its exposure to FTX was limited to deposits. However, a recent note by Goldman Sachs analysts said that it couldn’t confirm Silvergate’s exposure to FTX and its other related entities.
Last Friday, the same day as the crypto exchange FTX filed for bankruptcy, Silvergate Chief Executive Officer Alan Lane said:
“In light of recent developments, I want to provide an update on Silvergate’s exposure to FTX. As of September 30, 2022, Silvergate’s total deposits from all digital asset customers totaled $11.9 billion, of which FTX represented less than 10%. Silvergate has no outstanding loans to, nor investments, in FTX, and FTX is not a custodian for Silvergate’s bitcoin-collateralized SEN Leverage loans. To be clear, our relationship with FTX is limited to deposits”.
However, Goldman Sachs has updated its estimates last Friday expecting greater deposit outflows. This includes outflow “with a peak-to-trough decline of roughly $4.4bn, or 32%”. Considering Silvergate’s exposure to FTX, Goldman Sachs has reduced its target multiple for the Silvergate stock as well as its potential for significant earnings degradation.
Goldman Sachs has cut Silvergate’s stock price target to $40 from $64. “We would note, however, that we believe the risk of liquidity issues is relatively low at this point,” it added.
Silvergate Bank’s Operations Are Running Normal
Last Friday, Silvergate Bank’s CEO Alan Lane assured that the crypto bank’s operations are running absolutely normally. As of now, all SEN Leverage loans are performing absolutely normally with zero losses and no forced liquidations.
Lane also stressed that all the SEN Leverage loans are collateralized by Bitcoin. They don’t collateralize SEN Leverage loans with other digital assets or make any unsecured loans.
Lane concluded adding that “Silvergate’s platform was built to support our clients during times of market volatility and transformation, and the SEN has continued to operate as designed and without interruption. As a federally regulated banking institution that is well capitalized, we maintain a strong balance sheet with ample liquidity to support our customers’ needs.”