Market News

Crypto Banks Silvergate Capital (SI) and Signature (SBNY) are Raiding Money from FHLB

Story Highlights

Banks with crypto exposure and lending money to crypto-related companies are facing confidence issues from customers resulting in huge withdrawals. At such times, relying on FHLBs that also fund traditional banks seems to worsen the situation.  

After the cryptocurrency contagion ravaged crypto exchanges, crypto banks are on the edge of drying up their finances. With dwindling customer confidence in the digital asset world, depositors are withdrawing huge balances from crypto banks, forcing them to raid the coffers of the local Federal Home Loan Banks (FHLB).

Per a WSJ report, two major players, Silvergate Capital (NYSE:SI) and Signature Bank (NASDAQ:SBNY) have sourced $3.6 billion and $10 billion respectively from the FHLB during the last quarter of 2022. Remarkably, tapping FHLB is a new phenomenon for Silvergate Capital, while peer Signature Bank has drawn the maximum amount in the past several years.

What are FHLBs?

Federal Home Loan Banks act as a support system for the housing finance market in the U.S. FHLBs lend cheap money to smaller banks, commercial lenders, and credit unions. In return, they rely on cheaper government funding for their financing needs.

Moreover, FHLBs have the top spot on the list of creditors to be repaid in the event of default of one of its member banks, and are paid off even before the Federal Deposit Insurance Corp. (FDIC) Interestingly, FHLBs have been insulated from bad debts or credit losses since their inception during the Great Depression.

Is Silvergate a Good Stock?

Last week, Silvergate reported weaker-than-expected fourth-quarter results, missing both net interest income and adjusted earnings expectations. No wonder that analysts have a Hold consensus rating on the stock with three Buys, five Holds, and two Sell ratings. Also, the average Silvergate Capital price target of $17.20 implies 25.3% upside potential from current levels. Meanwhile, the stock has lost 86.2% over the past year.

Is Signature Bank a Good Stock to Buy?

Signature Bank, too, reported weak Q4FY22 results last week. Earnings of $4.65 per share came in lower than the consensus of $4.83 per share. Analysts have a Moderate Buy consensus rating on SBNY stock based on seven Buys, four Holds, and one Sell rating. Further, the average Signature Bank price forecast of $146.18 implies 14.4% upside potential from current levels, while the stock has lost 58.9% over the past year.

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