Silvergate’s Collapse: A Lesson in Overlooking Warning Signs
At least ten risk analysis studies and financial analysts follow the stock of Silvergate Corp. (SI), which is traded on the public market. Silvergate and other regional banks are analyzed by analysts for any fraud or risky parameters, who then provide a stock or bond rating for the company. After becoming aware of the FTX virtual currency exchange’s collapse, each analyst recommended SI.
Canaccord analyst Joe Vafi, for instance, predicted on November 9 that “in the incident that FTX systems fail operations or perhaps some customers relocate towards other exchanges, Silvergate will capture that volume of trade under its operational umbrella.” Vafi recommended buying Silvergate at $150 and set a price target of $160. With a closing price of $34.69 on November 9, Silvergate has never been so high again.
Dr. Angelo Calvello co-founded Rosetta Analytics, an asset manager that employs profound reinforcement learning to create and oversee investment strategies for large financial institutions. Several subsequent events were highly damaging to Silvergate Bank: a letter from lawmakers and a $4.3 billion dollar loan from the news of a Department of Justice investigation.
Furthermore, the other damaging events were a joint statement from bank regulators on “Crypto-Asset Risks to Banking Organizations” and the departure of many of the bank’s employees. Nevertheless, not everyone agrees; some have lowered their recommendation for Silvergate shares from buy to hold.
In an announcement made public on March 8, Silvergate stated that its bank would voluntarily liquidate and cease operations. Unfortunately, it was already too late for this about-face. The damage had already been done.