Silvergate Capital ( NYSE: SI ) stock retreated 5.8% in Wednesday premarket trading as Morgan Stanley analyst Manan Gosalia reduced his 2023 EPS estimate by 51% as the implosion of cryptocurrency exchange FTX roils the broader crypto space. Gosalia pointed out that the digital asset-focused bank's potentially lower deposit balances represent the biggest risk to its earnings. Recall last week when Silvergate ( SI ) CEO Alan Lane said his company's exposure to the now-bankrupt FTX were less than 10% of its total digital asset deposits totaling $11.9B, and its relationship with FTX was limited solely to deposits. In turn, "the company will likely see all of its FTX deposits flow out," the analyst, who views SI as an Equal-Weight pick, wrote in a note. "In addition, depending on the liquidity issues its other clients are currently facing,and depending on how much those clients de-leverage / de-risk, there could be additional deposit outflows." The analyst expects SI's digital deposit balances to fall 20% Q/Q in Q4 followed by a 10% slump in Q1 2023, bringing deposit balances back down to early 2021 levels. While Silvergate ( SI ) has a number of sources of liquidity to fund deposit outflows, those sources "are more expensive than SI's zero cost digital deposits, and will weigh on earnings," the note read. Given these developments, Gosalia has lowered his 2023 EPS estimate by 51% to $4.48 compared with the Street consensus of $5.95. See why Seeking Alpha contributor Nelson Alves justified Silvergate ( SI ) stock with a Neutral rating . Earlier this week, (Nov. 14) Wedbush highlighted that Silvergate Capital is not at risk of suffering credit losses related with FTX's collapse .
