Silvergate Capital EPS estimates further reduced, price target cut at Morgan Stanley

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Silvergate Capital (NYSE:SI) estimates were further reduced at Morgan Stanley, which cut its price target on the stock to $24 from $37 per share, maintaining an Equal-Weight rating. The price target cut is the second by the firm since last week.

Silvergate is a crypto-related company that helps institutional investors trade crypto and move money between exchanges.

Analysts told investors in a research memo that following Silvergate’s disclosure for average deposit balances last week, they are taking their EPS estimates down further to $1.58/$3.75 for 2023/24.

In addition, the analysts explained there is a wide range of outcomes and risks from the FTX collapse, which is reflected in its base case range of $14-40 for the stock.

“Silvergate disclosed last week that its digital deposits declined from $11.9B on Sep 30 on an end-of-period basis to $9.8B on Nov 15 on an average-QTD-excluding-FTX basis (note the difference in the disclosure type — from total end of period which includes FTX, to average QTD which excludes FTX). How much did deposits decline on an end-of-period (EOP) basis as of Nov 15? While SI has not disclosed that, we estimate a reasonable range is a decline to $5-7B, or a 40-60% decline in EOP deposits. Why such a wide range? It depends on when Silvergate started to feel the pressure from the FTX fallout,” wrote the analysts.

“Additionally, there can be a wide range in daily deposit balances based on client activity. We are taking the low end of that range, and cutting our estimates for quarter-end digital deposit balances from $9B to $5B, and taking our estimates for average digital deposit balances in 2023 down from $8.5B to $6.5B. As we mentioned in our note last week, as a regulated bank, SI has access to several sources of liquidity to fund deposit outflows. But these sources are more expensive than SI’s zero-cost digital deposits, and will weigh on earnings. We are taking our 2023 Net Interest Margin (NIM) down from 2.92% to 2.14% as funding costs rise. This takes our 2023 EPS down from $4.48 to $1.58,” the analysts added.