Why First Republic shares went on a rollercoaster ride. The stock moved so much because there was no news about the bank over the course of the intervening hours.
Here's a riddle for you. Shares in First Republic Bank closed at $31.21 on Monday, and opened at $49.69 on Tuesday — an overnight spike of 59%. There was no news about the bank over the course of the intervening hours. So why did the stock move so much?there was no news about the bank over the course of the intervening hours.
When that happens, depositors are generally unaffected, while shareholders are generally wiped out. The bank lives on — do a blood test on JPMorgan and you'll find WaMu DNA in there somewhere — but that's no solace to its former owners. That possibility was reflected in its Monday share price — so when Tuesday morning arrived and nothing had happened, the stock price, no longer reflecting the probability of a Monday-evening failure, went up.Banks are some of the most levered businesses in America — they have vastly more debt than equity. That's just how fractional-reserve banking works.
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