Silvergate Capital shares fall as Morgan Stanley cuts 2023 EPS estimate by 51%

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Silvergate Capital (NYSE:IF) the stock fell 5.8% On Wednesday before market, Morgan Stanley analyst Manan Gosalia cut his EPS estimate for 2023 by 51% as the implosion of cryptocurrency exchange FTX upends the broader crypto space.

Gosalia pointed out that the digital asset-focused bank’s potentially lower deposit balances pose the biggest risk to its earnings. Remember last week when Silvergate (IF) CEO Alan Lane said his company’s exposure to the now bankrupt FTX was less than 10% of its total digital asset deposits totaling $11.9 billion, and its relationship with FTX was limited to deposits only.

In turn, “the company will likely see all of its FTX deposits drain,” the analyst, who considers SI an equal-weight pick, wrote in a note. “Furthermore, depending on the liquidity issues its other customers are currently facing, and depending on the degree of deleveraging/de-risking of those customers, there could be additional deposit outflows.”

Analyst expects SI’s digital deposit balances to drop 20% Q/Q in Q4, followed by a 10% fall in Q1 2023, bringing deposit balances back to early-Q4 levels 2021.

While Silvergate (SI) has a number of liquidity sources to fund deposit outflows, these sources “are more expensive than SI’s zero-cost digital deposits and will weigh on earnings,” the note said.

Given these developments, Gosalia lowered its 2023 EPS estimate by 51% to $4.48 from the Street consensus of $5.95.

Find out why Seeking Alpha contributor Nelson Alves justified the Silvergate (SI) stock with a neutral rating.

Earlier this week (November 14), Wedbush pointed out that Silvergate Capital was not at risk of credit losses related to the collapse of FTX.

Sallie R. Loera