Nov 16, 2022
Jay Sidhu’s Bank Says It Dodged the Crypto Crash Spurred by FTX Collapse
(Bloomberg) -- No US regional bank stock climbed higher during last year’s crypto mania than Customers Bancorp Inc. Now, the bank built by finance veteran Jay Sidhu and other firms riding the digital wave are trying to distance themselves from the crisis created by the unraveling of FTX’s empire.
“We have no exposure associated with FTX,” Sam Sidhu, Customers Bancorp’s chief executive officer and Jay Sidhu’s son, said in an interview, emphasizing his bank’s exposure was limited because it’s a “new entrant” in the market. “We’re still building our business and taking market share, and people are migrating over to us.”
Nevertheless, a year after digital assets touched their peak, companies with exposure to the sector are seeing their stock prices waiver. Customers Bancorp is down about 50% since the start of 2022, while crypto-heavy Signature Bank has lost almost 56% and Silvergate Capital Corp. has sunk 81%.
Silvergate said deposits from FTX represent less than 10% of the $11.9 billion it has from “all digital asset customers.” And Signature Bank said deposits from FTX and related entities were “less than 0.1% of the bank’s overall deposits” as of Nov. 14.
Customers Bancorp has pushed in the past few years to increase its digital capabilities, including the introduction of a real-time payments platform that caters to businesses such as crypto-trading firms and institutional investors. The Pennsylvania bank closed out 2021 up almost 260% -- a better record than the best performers in blue-chip indexes such as the S&P 500 and the the Dow Jones Industrial Average.
The company’s potential to increase its book value and capital were major drivers of the gain, according to KBW analyst Michael Perito, with loan growth and cryptocurrency exposure offering upside as well.
Jay Sidhu helmed the bank when it filed to go public in 2012, and still serves as executive chairman. He previously headed Sovereign Bancorp, which once ranked as the second-largest savings and loan in the US before it was acquired by Spain’s Banco Santander SA. Sidhu was ousted from Sovereign in 2006 after a spat with investors, and failed in his attempt to purchase the firm using a blank-check company in 2008.
Banks that offer real-time payments and digital tokens used in such transactions aren’t facing the same contagion risks staring down crypto exchanges and other businesses with more direct exposure.
“There could be a chunk of deposits at risk of going away, but it’s nothing that should be damaging to the company’s CBIT platform,” Perito at KBW said in an interview, referring to Customers Bancorp’s real-time payments platform. “It’s going to be a challenging business for all these banks for the next quarter or two at least, but there’s nothing that will structurally impair the bank’s ability to grow or invest in growth in this platform.”
Even so, FTX’s spectacular fall and the resulting bankruptcy of founder Sam Bankman-Fried’s business empire is causing a crisis of confidence that lenders including Customers Bancorp are being forced to contend with.
“There’s a lot of folks probably on the sidelines who are saying, ‘It was a question of when, not if,’” Sam Sidhu said, adding that he and his bank are “disappointed” to hear of excessive risk-taking in any industry.
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