Signature Bank has heavily relied on crypto - and now has to expect the crash

The Signature Bank, the 30th largest bank in America according to assets, does not advertise and only operates seven official bank branches. Last year it was also one of the country's most powerful banks, driven by a decision to put the increasing interludes of the cryptocurrency industry in court.

With the crash crypto, however, the share price of the Signature Bank has also fallen, so that she has difficulty clearing out concerns that her quick growth is wrong.

Before the share price fell by a further 10 percent after the results of the past week, the CEO of Signature Bank, Joe Dapaolo, had tried to create some distance between the unusual institution that he had maintained for two decades, and its latest and most controversial customers.

"We are actually much more than a crypto bank," he told the Financial Times last month.

In a way, one of the most successful US banks that sail through the large financial crisis without losses is also one of the least known. His flagship branch in Manhattan is hidden 12 flags high in an office tower in Midtown, and the average American has his logo on the business account statements from bad vegan protagonist Sarma Melngailis as an encounter with the group.

Signature's secret of success, said Depaolo, is a tireless focus on growth in the deposits. He and the chairman Scott Shay founded the bank in New York 20 years ago and expanded them without a single takeover on deposits of $ 109 billion, concentrating to winning successful private companies and their owners as customers during the majority of their history.

Signature acted similarly to a wealth manager and grew by expanding teams of bankers from competitors, expanding from New York and then adding offices on the west coast to address the risk capital and private equity scene. "In contrast to almost every bank in the country, everyone who worked on the Signature Bank has decided to come here," said Shay.

What contributed to the fact that it was the stock with the best performance in the KBW banking index last year was a decision four years ago to accept crypto-minds, StableCoin emitters and Bitcoin miner as a customer, as well as the introduction of a blockchain-based payment system called Signet, this can be transferred to bank customers at any time of the day.

From a top market capitalization of $ 23 billion, the value of signature has halved and the company pulled to the bottom of the index, which it recently put at the top.

"Between 2018 and today you had a [digital assets] a business that started at zero and is now $ 29 billion in deposits. Crypto tends to attract most attention today. It was like a lightning rod," said Matt Breese, analyst at Stephens.

breakdown coin prices and a number of bankruptcy at crypto-related companies, including the lender Celsius Network, the broker voyager and the hedge fund Three Arrows Capital, have aroused fears of a financial crisis for the 13-year-old digital asset industry.

This month sparks flew again for signature after the group said that the deposits in the second quarter of Casey Haire, analyst at Jefferies, wrote that the decline "will now increase the fear of investors through the financing of future credit growth.

Signature was also confronted with speculation that its quick growth and introduction to a controversial industry could have attracted the attention of the supervisory authorities.

The Federal Deposit Insurance Corporation has a confidential list of observation of problem institutions. Every quarter it publishes the number and total assets of "problem banks", which caused a question of signature in the April winning call from JPmorgan analyst Steven Alexopoulos: "This rose by $ 120 billion, which corresponds approximately to its size. still consider. ”

Depaolo replied to the call that banks should not comment on the list, but if signature was on it, "I would know and I know nothing."

He told the FT that signature does not have cryptos, but only the dollar deposits of his customers. Depaolo said: "It is by chance an ecosystem that we serve, but we are not exposed to the digital world or the crypto world. So far we have had a loan that has been repaid. So we have no outstanding loans. We have no digital assets in our books."

When asked about the area in which Signature has quickly enlarged its credit book since 2018, the so-called “Fund Lending”, Depaolo described this area as a remarkably safe niche in the private equity industry. Signature fund capital calls investment funds when investors such as pension funds, foundations and sovereign funds are not immediately available for investments. "It's a loss -free business," he said.

The analyst of Morgan Stanley, Daniella Cohen, commented in a customer notification about the crypto volatility and rising interest: “We assume that higher interest rates will continue to burden the growth of the insoles in the future, since customers are striving for more attractive returns, and now expect the insert credit to decrease. second half of 2022. “

A shrinking institution could be a less attractive goal for the teams that they do by competitors, and some of the concerns that are privately expressed by investors relate to liquidity: Since signature, for example, is on the basis of eight of the 12 largest crypto brokers, the industry could implode in a credit crisis could quickly evaporate their deposits.

Signature is not yet big enough to publish the key figures required by its larger competitors to cover liquidity, but Daaolo said that the bank could withstand the death of Bitcoin and his peer. "Every month, we modeled with the assumption that every single last crypto insert is withdrawn," he said, referring to signatures $ 20 billion in marketable securities, available credit lines and a bar position that was $ 14.6 billion at the end of June.

"The first thing we think of when we wake up in the morning, and the last thing we think about at night when my head falls on the pillow must be ensured that we have plenty of liquidity and secure assets," said Dapaolo.