What happened
As of noon ET Friday, Signature Bank's (SBNY +0.00%) stock price had plummeted by 11.2% this week, according to S&P Global Market Intelligence. Trading at about $120 per share, the stock was down by 62% year to date.
The broader market indexes were also lower for the week, with the Dow Jones Industrial Average down 1.9%, the S&P 500 off 2.4%, and the Nasdaq Composite down 2.9%.
So what
Signature Bank, also known as Signature Bank of New York, has been hit harder than most financial institutions this year due mainly to its exposure to the cryptocurrency sector. Signature Bank is one of only a few major banks that serves the crypto industry. It has its own blockchain-based real-time payments network called Signet, which facilitates the trading of digital assets between institutional traders and crypto exchanges.
Since FTX went bankrupt in November, the crypto market has taken another major hit, and Signature Bank's shares moved in sympathy even though its exposure to FTX only amounted to about 0.1% of its overall deposits.
But the fallout has been severe throughout the industry, so Signature Bank announced this week that it was reducing its exposure to non-interest-bearing deposits from the cryptocurrency industry by about $10 billion.
OTC: SBNY
Key Data Points
At the Goldman Sachs Financial Services Conference, Signature Bank Chief Operating Officer Eric Howell said the bank plans to reduce its share of deposits from digital assets from about 23% to under 20% -- and eventually down to 15% or lower, reported Bloomberg Law. The bank will also establish a cap on deposits from any single crypto client.
At the end of the third quarter, Signature had about $103 billion in deposits, with $65.4 billion in interest-bearing accounts and $35.4 billion in non-interest-bearing accounts.
"We're not just a crypto bank and we want that to come across loud and clear," Howell said at the conference, according to the Financial Times. The bank had about $114 billion in assets under management as of Sept. 30 and offers private banking services to high-net-worth individuals and their businesses, with offices in New York, California, Connecticut, and North Carolina.
Now what
Signature Bank was downgraded by a couple of analysts this week. Morgan Stanley's Manan Gosalia cut his rating on it to equal weight from overweight and dialed his price target down to $152 from a previous level of $223. He indicated that in his view, Signature was less equipped to manage the expected headwinds from tightening liquidity conditions in a rising rate environment, reported the Fly.
Also, Raymond James' David Long downgraded Signature Bank from a strong buy to market perform following the remarks made at the Goldman Sachs conference. Long said he expects that slower growth and net interest margin compression will result from the bank's plan to de-risk and diversify its business model.
This shift in strategy is an interesting call by Signature management, as the bank does not pay interest on deposits from crypto clients, which helps it boost its net interest income. It has a successful private banking business, but it remains to be seen what impact this change will have on the Signet platform and its cryptocurrency business. There is so much uncertainty in that space, it is hard to have confidence one way or the other until we see what happens with regulations.
