crypto strategy

Some Crypto-Friendly Banks Post Positive 2-Year Returns Despite a Rocky 2022

Shares of several banks exposed to cryptocurrency assets have fallen over the past year, but some are still up over two years thanks to their ascent during the last crypto bull run.

Over a two-year period, two banks with less exposure to crypto or more diversified business combinations – Customers Bancorp Inc. and Metropolitan Bank Holding Corp. – generated positive returns on their shares and both outperformed the benchmark. In Q3 2022, deposits generated by crypto customers represented 10.8% of total deposits for Customers Bank and 13.3% for Metropolitan Commercial Bank, according to analysis by S&P Global Market Intelligence.

As of January 6, the one-year total returns of five select bank stocks exposed to crypto assets were all well below those of the sector benchmark. Silvergate Capital Corp., which has the highest concentration of crypto-related deposits among the five, was the hardest hit with a negative 90.8% year-over-year return on its shares and a negative 81.5 return. % over two years.

The crypto industry stumbled at the end of 2022 after the collapse of the TerraUSD and Luna stablecoin pair in May triggered the bankruptcy of crypto lenders Voyager Digital Ltd. and Celsius Network Inc. The sinking of FTX Trading Ltd. in November pushed BlockFi Inc. to file for bankruptcy later that same month. Genesis Global Trading Inc. is the latest player to assess options that include a potential bankruptcy filing.

Silvergate and Signature Bank serve FTX and BlockFi. Voyager works with Metropolitan Commercial Bank, a unit of Metropolitan Bank Holding Corp., and Genesis works with Customers Bank of Customers Bancorp, according to public information. While these relationships tend to be for payments and deposits, Provident Bancorp Inc.’s banking unit, BankProv, has also experienced losses on loans made to distressed individuals. cryptocurrency miners.

Outputs and uncertainties

Banks exposed to crypto face worsening crypto market conditions and downward trends in their stock prices. The sector’s vulnerabilities have prompted regulators to warn U.S. banks of significant risks from concentrated exposures to the crypto sector, according to a Jan. 3 joint statement.

BankProv CEO Dave Mansfield resigned in December following what Stephens analyst Matt Breese called a “chaotic few months” resulting from downgraded loans.

“Overall, we weren’t surprised by the leadership transition and expect more corrective action in the months ahead,” Breese wrote on Dec. 28. The bank has not publicly discussed its future crypto strategy in recent months, and its website still lists a section. about his “crypto business”.

On January 9, Metropolitan Community Bank announced that it would end banking relationships with the last four of its crypto customers in 2023. It has not onboarded new crypto customers since 2019, but previously wanted to keep customer deposits existing cryptos.

Analysts at JP Morgan Securities wrote in a Jan. 9 note that they view Metropolitan as undervalued at current valuations and believe the exit from crypto-related activity will lift an overhang on its shares.

Signature Bank executives said in December that the company was not exiting crypto banking but was aiming to reduce crypto customer deposits to a maximum of $10 billion, with the goal of reducing those deposits to around 15%. of total deposits over time.

Silvergate executives reiterated the bank’s commitment to crypto customers in a January 5 business update. the crypto sector.

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