Silvergate Slumps as Regulators Discuss How to Resolve Crypto Bank's Crisis

Katanga Johnson, Lydia Beyoud and Max Reyes, Bloomberg News

(Bloomberg) -- Shares of Silvergate Capital Corp. slumped amid talks with federal regulators about ways for the troubled crypto-friendly bank to avert a collapse.

The stock fell more than 12% after the shares opened in New York, trading for as little as $4.57 before somewhat paring those losses. Federal Deposit Insurance Corp. officials have been talking with management about ways to salvage the company, according to people familiar with the matter. One possible option involves lining up investors to shore up Silvergate’s liquidity, one of the people said.

FDIC examiners arrived at the firm’s La Jolla, California, offices last week, the people said. The lender hasn’t made a decision on how to deal with its financial turmoil, said the people, who asked not to be named discussing internal deliberations. FDIC examiners were authorized to go to the bank’s offices by the Federal Reserve, which is the lender’s main federal overseer, one of the people said.

While the Fed and FDIC are involved, the bank might ultimately be able to navigate its troubles without regulators, another person said.

The risk for the stock is that when a resolution is reached for a distressed bank, shareholders are often left with little or nothing. A representative for Silvergate didn’t respond to phone and e-mailed messages seeking comment. The FDIC said it doesn’t comment on “open and operating institutions.” The Fed declined to comment.

“Silvergate shares are under pressure as short interest shows no signs of letting up,” Ed Moya, a senior market analyst at Oanda Corp., said. “Some traders don’t believe that Silvergate will be able to right the ship.”

The bank’s shares traded at $4.89 at 2:48 p.m. in New York.

The FDIC’s involvement is the latest sign of the urgency of Silvergate’s woes. Last week, the firm said mounting losses may force it to evaluate its ability to stay in business. Because deposits from the lender’s clients are insured by the government, the regulator could play a major role in any potential solution.

(Updates with analyst comment and latest share price starting in the second paragraph.)