Crypto Bank Silvergate Cut to Underweight at Morgan Stanley Following FTX Collapse

Stress in the cryptocurrency market following the bankruptcy of crypto exchange FTX gives rise to a number of risks for Silvergate Capital (SI), Morgan Stanley said in a research report Monday.

Led by analyst Manan Gosalia, the team from the Wall Street bank downgraded its rating on Silvergate's shares to underweight from equal weight, but kept its price target at $24. The stock was lower by 3% to $25.69 in premarket trading, adding to a decline of more than 50% since the beginning of November.

Silvergate is faced with significant uncertainty about deposit flows in the near term, the analysts said, estimating that Silvergate's digital deposits are down 60% so far in the fourth quarter from the third quarter. As clients withdraw their deposits, the bank faces pressure on its net interest margins and net interest income because it needs to fund outflows with securities sales and more costly wholesale borrowing.

The demise of FTX could also drive litigation and headline risk across the crypto ecosystem, the note added.

Morgan Stanley’s 2023 earnings-per-share estimate for Silvergate is $1.58, far below the average estimate of $4.19.

Read more: Crypto Bank Silvergate Says Its BlockFi Digital-Asset Deposit Exposure Totals Less Than $20M