As crypto-exposed bank Silvergate Capital (SI) faces financial and regulatory concerns that have raised questions about its long-term viability, analysts at JPMorgan maintained optimism about shares of Signature Bank (SBNY), another crucial banking partner for the crypto industry.
In a note to clients published Monday, the firm reiterated an Overweight rating on Signature shares, writing: “On an overall basis, the mid-quarter update provided by Signature ‘threads the needle’ as the company continues to reduce exposure to digital asset related deposits but, most importantly, at a pace that appears to be dictated by Signature rather than by the markets.”
In its mid-quarter update, Signature showed its spot deposit balances through January and February were $826 million lower. However, the bank said the decrease was “driven by the deliberate decline in digital asset client related deposits of $1.51 billion.” Excluding digital asset related deposits, Signature’s increased by $682 million for the same period.
Late last week, shares of Silvergate fell nearly 60% following another delay of its annual filing and disclosing additional losses, which called its ability to operate for the next year into question. Amid this drawdown, crypto firms quickly distanced themselves from Silvergate adding new challenges to the firm’s digital asset deposits which had become key to its banking business.
In the fourth quarter, Silvergate’s deposits fell by $8.1 billion, or more than two-thirds. Over the same period, Signature’s total deposits fell a more modest 14%.
JPMorgan also doesn’t see Signature facing a challenge as acute as Silvergate, given the firm had been planning for a reduction in its digital asset-related deposits since late last year. Through the first two months of 2023, Signature decreased its loan balances by $1.7 billion, $200 million more than what JPMorgan anticipated.
“Once the industry has worked through the challenged deposit environment ahead and uncertainty dissipates, we see the current discount valuation at SBNY as being replaced with a multiple more in line with the long-term growth potential of the franchise,” the firm added.
Shares of Signature bank were down about 1.2% in late morning trade on Monday; over the last year, the stock has lost nearly two-thirds of its value.
Silvergate shares were up more than 4.5% on Monday.
Data analytics firm, S3 Partners found Silvergate was the most shorted company in the stock market last Thursday by percentage of float, with more than 85% of its shares available for borrow being sold short. By comparison, bets against Signature stood at a more modest 5.6% of its float being sold short.
David is a reporter for Yahoo Finance. Follow him on Twitter @DSHollers