Silvergate extends sell-off into 2nd day as Bank of America sees 35% downside after the crypto bank disclosed huge run on deposits

• BofA downgraded Silvergate Capital on Friday and said it sees another 35% downside for the crypto-focused bank.
• Silvergate shares plunged Thursday after it was revealed customers withdrew billions in deposits.

Silvergate Capital shares extended a sell-off into a second session on Friday following the crypto-focused bank's disclosure that customers withdrew billions of dollars in deposits after the collapse of FTX, with Bank of America telling clients it sees the stock falling by at least another 35%.

"Silvergate's preliminary 4Q22 results introduced a new overhang on the stock: negative earnings growth," Bank of America analyst Brandon Berman wrote in a note published Friday.

The investment bank downgraded Silvergate to an underperform rating from neutral and slashed its price objective to $8 a share from $37 a share.

The new price outlook implies a downside of 36% from Thursday's closing price of $12.57. The shares during Friday's trade were down 10% at $11.29 in heavy volume of more than 5.4 million shares.

The stock sank by nearly 43% on Thursday after Silvergate said it was forced to sell assets at a loss to cover $8.1 billion worth of customer withdrawals late last year in the wake of FTX's implosion. The San Diego-based bank said its fourth-quarter preliminary results showed a 68% drop in crypto-related deposits.

Bank of America noted Silvergate's shares had already lost more than 90% from their peak ahead of the results, hurt by funding concerns stemming from weakening trends in the crypto market.

BofA cut its per-share earnings estimates for Silvergate by 90% for 2023 and 2024 to take into account the company's previous announcement that it was suspending an initiative to launch a stablecoin. It now sees those earnings coming in at $0.67 and $0.90, respectively, primarily reflecting a 50% reduction to its revenue growth forecast.

"Finally, future regulatory and legislative actions - especially given the bank's ties to and due diligence of FTX/Alameda Research - may not be fully recognized by the market," Berman wrote.

The cryptocurrency market's valuation has dropped from $2 trillion in November 2021 to $818 billion as of Friday, with prices for bitcoin, ether, and other cryptocurrencies hit during the so-called crypto winter.