It’s time to sell Silvergate Capital following the FTX collapse, according to Morgan Stanley. Analyst Manan Gosalia downgraded shares to underweight from equal weight, saying there is more revenue pressure on the crypto bank than investors are pricing in. “The ongoing stress in the crypto ecosystem post the FTX collapse drives significant uncertainty on deposit flows at SI in the near term,” Gosalia wrote in a Monday note. In the fourth quarter of 2022, the analyst expects that digital deposits could fall 60% from the prior quarter, meaning “significant pressure” on the bank’s net interest income (NII) that Silvergate will have to fund with securities sales or wholesale borrowing. Net interest income is the difference in revenue generated from interest-bearing assets and the costs paid on interest-bearing liabilities. The analyst’s 2023 EPS estimates of $1.58, in a range of $1.07 to $3.74 in his base case, are below the consensus estimates of $4.19, according to the note. Shares of Silvergate Capital have cratered this year, tumbling nearly 65% this quarter alone, mirroring the bear market in cryptocurrencies. The price of bitcoin is down nearly 63% in 2022. Following the FTX debacle, investors are further watching for any possible contagion in crypto and crypto-related stocks. “The fallout of the FTX collapse could drive litigation and headline risk across the crypto space. Although the stock is down 80% YTD, we prefer other avenues for deployment within our expanded coverage until the risks become clearer,” Gosalia wrote. The analyst’s $24 price target is about 9% below where shares closed Friday. The stock is down more than 3% in Monday premarket trading. —CNBC’s Michael Bloom contributed to this report.
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