Signature Bank’s (SBNY) management’s decision to shrink its digital asset deposits business is understandable given the recent turmoil in the cryptocurrency industry, but the negative impact on net interest margin (NIM) and and net interest income (NII) is being underappreciated, Jefferies' Ken Usdin said in a report Monday.
Usdin downgraded SBNY to hold from buy, and slashed its price target to $124 from $185. The rating and price target cuts come after the stock’s 67% tumble from year-ago levels. Shares are down marginally to $116 in early action on Monday.
Shrinking crypto deposits by $8 billion to $10 billion and replacing them with wholesale borrowings costing around 4.25% will drive a significant reset in net interest margin in the coming quarters, said Usdin. While management plans to pay down some borrowings with core deposit growth, it will take some time for the bank’s other businesses to generate that growth, according to his report.
Signature in early December said that it planned to shrink its deposits tied to cryptocurrencies, signaling a move away from the digital asset industry for the bank.
The leader in news and information on cryptocurrency, digital assets and the future of money, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups. As part of their compensation, certain CoinDesk employees, including editorial employees, may receive exposure to DCG equity in the form of stock appreciation rights, which vest over a multi-year period. CoinDesk journalists are not allowed to purchase stock outright in DCG.