Silvergate shutting down operations and liquidating bank

Silvergate Capital announced on Wednesday that it will wind down operations and liquidate Silvergate Bank. The company’s stock is down more than 25% in after-hours trading.

Silvergate is one of the two main crypto banking giants. The other is the New York-based Signature Bank which has more than $114 billion dollars in total assets. Silvergate has just over $11 billion.

“In light of recent industry and regulatory developments, Silvergate believes that an orderly wind down of Bank operations and a voluntary liquidation of the Bank is the best path forward,” the company said in a statement.

All deposits will be fully repaid, according to a liquidation plan shared on Wednesday afternoon. It is unclear, however, how the crypto-friendly bank plans to resolve claims against its business.

Centerview Partners will act as Silvergate’s financial advisor and Cravath, Swaine & Moore will provide legal services.

After the market close on March 3, Silvergate suspended its payments platform known as the Silvergate Exchange Network, or SEN, which was considered to be one of its core offerings. As part of the liquidation announcement, Silvergate said it would permanently discontinue the payments network but clarified that all other deposit-related services remain operational as the Company works through the wind-down process. Customers will be notified should there be any further changes.

The announcement comes one week after Silvergate said it would delay the filing of its annual 10-K for 2022 while it sorted out the “viability” of its business. The company disclosed that the delayed 10-K filing was partly due to an imminent regulatory crackdown, including a probe already underway by the Department of Justice.

Crypto companies like Coinbase and Galaxy Digital raced to cut ties with Silvergate last week after the bank warned that it was unsure whether it had the ability to stay in business.

Silvergate has been struggling for months. The now bankrupt and infamous crypto exchange FTX was both a customer and a big backer of Silvergate.

In addition to laying off 40% of its workforce, the crypto banking giant also reported a nearly $1 billion dollar net loss in the fourth quarter following a bank run at the end of last year that saw customer deposits plummet 68% to $3.8 billion.

To cover the withdrawals, Silvergate had to sell $5.2 billion dollars of debt securities.

It also went to the Federal Home Loan Bank for an additional $4.3 billion. That loan drew attention from lawmakers like Sen. Elizabeth Warren, D-Mass, who said this “further introduced crypto market risk into the traditional banking system.”

Investment firms Citadel Securities and BlackRock recently took major stakes in Silvergate — 5.5% and 7%, respectively.