Silvergate Capital (NYSE:SI) The crypto-focused bank added to its Thursday losses following a downgrade from JPMorgan to neutral from overweight. The firm cited Silvergate’s worse-than-expected deposit outflows and called into question the company’s long-term profitability.
On Thursday, the company said it's slashing headcount by around 40% in a cost-cutting move. Also, it's taking a $196M impairment charge after seeing a nearly 70% Q/Q drawdown in digital asset customer deposits amid a tough backdrop for the crypto space.
"The implications to the company’s business from the significant reduction in client deposits has near- as well as longer-term impacts," Alexopoulos wrote in a note.
Over the medium term, deposit balances will likely keep retreating back toward levels seen prior to 2020 levels, before the latest bull market took hold, he noted. For the long-term, the company's profitability will be impacted since it will likely need to maintain higher levels of liquidity than before.
"While one could argue that the shares remain cheap on the surface, given the wildcards associated with the medium- as well as long-term impacts to the business, we see upside potential being fairly limited until the earnings power of the franchise is better understood," the analyst contended.
In late October, when SI was around $60 a share, Seeking Alpha's Quant rating system flagged the stock at high risk of performing badly given negative EPS revisions and decelerating momentum. Now, SI is changing hands at $11.24.
In mid-December, BTIG said short traders will eventually cover their bearish bets on SI, resulting in a short squeeze .
Silvergate shares lost $1.70, or 13.5%, to $10.87.
