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 downgraded Silvergate shares to underweight from equal weight with an unchanged price target of $24. Shares were 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, said the analysts, estimating that Silvergate digital deposits are down 60% quarter-on-quarter so far in Q4. As clients withdraw their deposits the bank faces pressure on net interest margins (NIM) and net interest income (NII) as 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 (EPS) estimates for Silvergate are $1.58, far below current Wall Street consensus at $4.19.

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