Silvergate Capital shares fall as Morgan Stanley cuts 2023 EPS guidance by 51%

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Silvergate Capital (NYSE:SI) stocks retreated 5.8% in premarket trading on Wednesday as Morgan Stanley analyst Manan Gosalia cut his 2023 EPS estimate by 51% as the collapse of cryptocurrency exchange FTX roils the broader crypto space.

Gosalia pointed out that the bank’s potentially lower deposits based on digital assets represent the biggest risk to its income. Remember last week when Silvergate (SI) CEO Alan Lane said his company’s exposure to now-bankrupt FTX less than 10% of total digital asset deposits of $11.9 billion and its relationship with FTX was limited to deposits only.

Conversely, “the company will likely see all of its FTX balances expire,” the analyst wrote in a note. “Additionally, depending on the liquidity issues faced by its other clients, and depending on how much those clients leverage / de-risk, there could be additional deposit outflows.”

The analyst expects SI digital deposits to decline by 20% Q/F in the fourth quarter, followed by a 10% decline in the first quarter of 2023, bringing deposits back down in early 2021.

While Silvergate (SI) has various sources of liquidity to fund deposit outflows, these sources are “more expensive than SI’s zero-cost digital deposits and will weigh on earnings,” the note said.

In light of these developments, Gosalia has lowered its 2023 EPS estimate by 51% to $4.48 compared to the Street consensus of $5.95.

See why Nelson Alves’ Seeking Alpha contribution justified Silvergate (SI) stock with a neutral rating.

Earlier this week (Nov. 14), Wedbush emphasized that Silvergate Capital is not at risk of exposure to credit losses as a result of FTX’s collapse.

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