Silvergate ditches mortgage warehouse lending, cuts 20% of workforce

The decision was made after clients pulled $8 billion+ in crypto-related deposits in Q4 2022

Silvergate Capital Corporation, parent company of Silvergate Bank, which provided services to Sam Bankman-Fried’s now-collapsed crypto empire, walked away from its mortgage warehouse business and cut workforce by 20% as clients pulled $8.1 billion in crypto-related deposits.

Silvergate’s provisional fourth quarter earnings report revealed that it exited its mortgage warehouse lending product in the fourth quarter of 2022 due to “the current macro environment, the rising interest rate environment and related reduction in mortgage volumes.”

As a result, the California-based group incurred $4 million in costs for a “restructuring charge primarily related to severance and employee benefit costs in the same quarter, ” according to a U.S. Securities and Exchange Commission filing.

Founded in 1988 as an industrial loan company, Silvergate began catering to companies in the cryptocurrency industry in 1993. The bank operates a network that links investors to crypto exchanges after taking companies’ deposits. 

About 90% of Silvergate’s total deposits are crypto-related — and about $1 billion of the bank’s deposits were from FTX and other companies controlled by its founder, Bankman-Fried, according to the Wall Street Journal

After increasing employee headcount at a rapid rate in 2022, Silvergate recently slashed employee headcount by 20%, or 400 of its entire workforce, in order “to account for the economic realities facing the digital asset industry today,” according to the filing. Impacted employees were notified on January 4.

“In the fourth quarter of 2022, the digital asset industry underwent a transformational shift, with significant over-leverage in the industry leading to several high-profile bankruptcies,” the group said.

There were about $8 million in costs associated with the layoffs – including $6.1 million in severance payments and $1.3 million in employee benefits.

Silvergate’s preliminary earnings report also showed the sale of debt securities for cash proceeds to maintain liquidity, including the sale of $5.2 billion in debt securities at a loss of $718 million during the fourth quarter of 2022. Total deposits from digital asset customers declined to $3.8 billion on December 31 from $11.9 billion on September 30. 

“In response to the rapid changes in the digital asset industry during the fourth quarter, we took commensurate steps to ensure that we were maintaining cash liquidity in order to satisfy potential deposit outflows, and we currently maintain a cash position in excess of our digital asset related deposits,” Alan Lane, chief executive officer of Silvergate, said in a statement. 

While the group faces scrutiny from U.S. lawmakers, who are urging clarity on Silvergate’s role in accepting customer deposits for Bankman-Fried’s crypto firm, the firm said Silvergate’s mission has not changed: It remains committed to crypto.

“Silvergate believes in the digital asset industry and remains focused on providing value-added services for its core institutional customers,” the firm said. 

Leave a Reply

Your email address will not be published. Required fields are marked *

Most Popular Articles

3d rendering of a row of luxury townhouses along a street

Log In

Forgot Password?

Don't have an account? Please