Silvergate Capital Corp., parent of Silvergate Bank, on Thursday announced it is laying off about 40% of its workforce, in addition to ending its mortgage lending warehouse product.
In a document filed Thursday with the Securities and Exchange Commission, Silvergate said the layoffs are a response to “recent turmoil in the digital asset industry and the corresponding impact on the company’s balance sheet.”
Silvergate Bank provided services to crypto exchange FTX Trading Ltd., the failed cryptocurrency exchange founded in 2019 by Sam Bankman-Fried. FTX filed for Chapter 11 bankruptcy protection in November.
According to the SEC filing, which the La Jolla, Calif.-based company said is a look at “select preliminary fourth-quarter 2022 financial metrics,” the collapse of FTX resulted in Silvergate Bank’s total deposits from digital asset customers falling by $8.1 billion — from $11.9 billion as of Sept. 30, 2022, to $3.8 billion as of Dec. 31.
“In order to accommodate sustained lower deposit levels and maintain its highly liquid balance sheet, Silvergate sold debt securities for cash proceeds” to cover the withdrawals, the company said.
According to the filing, Silvergate sold $5.2 billion in debt securities for cash proceeds during the fourth quarter, with the sale resulting in a loss of $718 million during the quarter.
Silvergate also noted that it had increased its “employee headcount at a rapid rate” during 2022, in an effort to “keep up with its growing digital asset business and serve its customers.”
That changed dramatically In the fourth quarter, however, as the digital asset industry “underwent a transformational shift, … with significant over-leverage in the industry leading to several high-profile bankruptcies,” it said.
As a result, Silvergate said, the company is taking “several actions to help ensure its business is resilient.” That includes “recalibrating its expense base.”
A big part of that recalibration is laying off about 200 workers, which Silvergate said represents 40% of its workforce. That would mean it employed approximately 500 people before the cuts.
“Reducing headcount will enable the company to continue to offer a tailored customer experience, while prudently managing expenses in a more challenging macro environment,” Silvergate said in its filing.
The affected employees were notified of the layoffs on Wednesday, the company said, adding it is providing severance packages and job placement resources.
Silvergate estimated that the aggregate costs for the reduction in force will be about $8 million, including approximately $6.1 million in severance payments and $1.3 million in employee benefits. The majority of those costs will be incurred in the first quarter of 2023, it said.
Those costs are in addition to a $4 million restructuring charge it incurred in the fourth quarter of 2022, primarily related to severance and employee benefit costs associated with the company exiting its mortgage warehouse lending product in the fourth quarter of 2022. Silvergate said it decided to exit warehouse lending due to “the current macro environment, the rising interest rate environment, and related reduction in mortgage volumes.”
In announcing its “recalibration,” Silvergate said its mission has not changed.
“Silvergate believes in the digital asset industry and remains focused on providing value-added services for its core institutional customers,” the company said in its filing. “The company is committed to maintaining a highly liquid balance sheet with a strong capital position. Silvergate has purpose built its business to support customers not only during periods of growth but also in periods of volatility — that is, its business is designed to accommodate deposit inflows and outflows under a range of market conditions. Despite significant industry turmoil, Silvergate stands ready to support its digital asset customers.”