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Crypto Bank Battle: Signature Bank Appears to Be Gaining on Silvergate Capital – Motley Fool

Returns as of 01/25/2022
Returns as of 01/25/2022
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Silvergate Capital (NYSE:SI) and Signature Bank (NASDAQ:SBNY) are of far different scales in terms of the amount of assets they hold, and very different banks when you look at their balance sheets. But they are two of the only banks in the U.S. that run real-time payment networks that allow the parties on them to clear and settle transactions instantly at any time of day, all year round. These payment systems help facilitate crypto trading between institutional traders and crypto exchanges. And while Silvergate has a first-mover advantage in this space, it looks like Signature has been making gains in recent quarters.
Both Silvergate’s payments network, the Silvergate Exchange Network (SEN), and Signature’s payments platform, Signet, are deposit magnets, attracting large sums of deposits that the institutions pay little to no interest on. 
Image source: Getty Images.
In the fourth quarter, Silvergate’s average deposits grew by nearly $2.6 billion quarter over quarter to $14.3 billion. Signature, by contrast, holds more than $118 billion in assets, but it started as more of a traditional bank. It also discloses less detail than Silvergate, but CEO Joseph DePaolo said on the bank’s recent earnings call that deposits on Signet grew by $2.4 billion in the fourth quarter to $7.7 billion. DePaulo also said that during the first few weeks of January, total deposits on Signet surpassed $10 billion multiple times. Signature also has a digital asset deposit book that appears much bigger than what’s on Signet. Signature CFO Eric Howell said that deposit book has nearly $29 billion, but the majority of that doesn’t appear to be on Signet.
Where it really looks like Signature is gaining on Silvergate is in their respective numbers of clients and transfer volumes.
Source: Earnings materials and call transcripts
As you can see, in Q2 2021, SEN had roughly 421 more clients than Signet. However, by the end of 2021, its lead was down to 339. Notably, SEN only added 76 clients in Q4, whereas Signet added 139.
However, onboarding customers to these networks can take time, and those additions can be finalized in clumps. Silvergate recently said it had roughly 300 clients in the onboarding pipeline for SEN, so their numbers of recently added clients may not be the best indicator of how they are faring relative to each other. But Signet’s gains on SEN are even more apparent in terms of transfer volume. In Q2 2021, SEN handled more than $90 billion more volume than Signet. In Q4, that gap had narrowed to just $5.5 billion.
As the institutions’ management teams have attested, even after a client gets onboarded to a network, it can take some time for them to shift assets over to it and begin using that network fully, so perhaps Signet just hit its stride in Q4. But with transfer volumes on each network closer than ever, it’s hard to ignore completely, because volumes on these networks are correlated with broader crypto spot trading volume in the quarter.
Not long ago, the market was valuing Silvergate higher than Signature on a price-to-tangible-book basis (market cap relative to tangible common equity), but now Signature trades at roughly 300% of its tangible book value, while Silvergate has fallen back and now trades at 247% of its tangible book value. Silvergate still trades at a higher multiple on an earnings basis. Both of these banks are strong operations, though they can’t be compared on a strict apples-to-apples basis given that Signature is far bigger and still has some legacy banking operations. But looking at their latest results, it certainly looks like Signet made some gains on SEN this quarter. Investors will want to keep an eye on how their competition for real-time payment network clients and deposits progresses.

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