Silvergate Capital stock dips as Wedbush warns of possible FTX-linked credit exposure
Silvergate Capital (NYSE:SI) stock got knocked lower by 5% in Wednesday morning trading as Wedbush analyst David Chiaverini warned about the digital asset-focused bank's possible credit exposure to struggling cryptocurrency exchange FTX.
Sam Bankman-Fried's FTX has taken the spotlight in recent days after rival Binance said it would offload its FTX Token (FTT-USD) holdings, the crypto issued by FTX, in a move that resulted in huge outflows from FTX. FTX's liquidity crunch created enough of a concern that it agreed to sell itself to Binance in a non-binding agreement.
After the Binance-FTX news emerged, "rumors have begun to emerge that Silvergate has a line of credit out to FTX, putting them at potential risk of credit exposure," Chiaverini, who views SI stock with an Outperform rating, wrote in a note to clients. Silvergate did not immediately respond to Seeking Alpha's request for comment.
If the rumors are true, the exposure to FTX would likely be on the deposit side of Silvergate's (SI) balance sheet, and "while there may be an increased risk of deposit outflows due to this news, we do not expect to see any credit losses," the note read.
The potential Binance-FTX deal itself "showcases one of the larger near-term headwinds for SI, as we believe the sentiment surrounding digital assets continues to erode as the economy seems headed toward a fairly certain recession," Wells Fargo analyst Jared Shaw wrote in a note.
SA's Quant system warned investors towards the end of October that SI stock was at high risk of performing badly due to negative EPS revisions and decelerating momentum. Since that call, SI shares dropped 57%.
Previously, (Oct. 26) Silvergate Capital cut to Neutral at Goldman after disappointing Q3 results.