First Republic Bank (OTCPK: FRCB) stock is up 76% on yesterday. FRCB stock is also up some 400% on the past two weeks. That's a lovely speculation to be on the right side of, of course. But to work out where this is going we need to work out what is going on here. To which the answer is, well, there might not be anything here other than just the joy of the speculation.
It is true that stock prices can wildly over-react. Thus those comments about buying when there's blood on the floor and terror in hearts etc. Things that collapse often do overshoot and then revive, to some extent. Those rises are not always dead cat bounces either (that idea being that if you drops something from high enough then it will bounce, even a dead cat). So, there is that thought that anything which is currently trading at 0.1% of what it was trading at 3 months back must be due a rise. Which might even be true.
But these are general observations, not actual facts. What we need to know is whether there's anything substantial behind a rise in First Republic Bank other than just those general assumptions about what falls must rise?
First Republic Bank stock price from NASDAQWe have to admit that we can't see anything there. First Republic Bank definitely went bust. There's no doubt about that. We could look at how it went bust. As a result of the run of deposits out the door FRB (as the stock then was) sold off vast portions of the hold to maturity book of assets. That crystalised the losses on that book. This wiped out the capital of the bank. So this was different from the standard result of a bank run, mere illiquidity. That illiquidity led, directly, to insolvency. And an insolvent bank - like an insolvent any other form of company - doesn't return anything to equity. For there's nothing left there, nett, after everyone else has been paid.
It is possible to start thinking that maybe this will be like Hertz. Where asset values changed, massively, after Chapter 11 and thus the company revived - that is, there was something left after everyone else got paid and so equity did get something. But there's a specific issue about banking insolvencies here. FDIC seizures - which is technically what did happen - don't allow for do-overs or mulligans. The value of anything is the forced sale value of it on the day of the seizure or the moment of on-sale to someone by the FDIC or the administrators. These prices are not challengeable nor changeable.
So, we can't see that there is any value in this rump of FRCB. No objective value, that is. Although clearly there is massive joy being had in speculation upon it.