Here's what's ailing banks and industrials

They are deal-less sectors in a deal-filled world, and that's what's making them suffer.

By Jim Cramer Aug 12, 2014 12:42PM

Atlanta's skyline with Bank of America Plaza and SunTrust Plaza © Danita Delimont/Getty ImagesWhen we talk about mergers and acquisitions, we think they run the gamut of industries. In fact, they don't, and the two areas where we have seen no consolidation are the two areas whose stocks are just acting horrendously at this moment. This makes sense. When there is no consolidation, there's no ability to rationalize and take out costs. Without consolidation, there's way too much competition. Without takeovers, you just can't boost estimates, the lifeblood of all positive stock moves.


Which two industries am I talking about? The banking stocks and the industrials.

I have watched the sickening dribs-and-drabs sell-off in the banking group for what seems like ages now. My Action Alerts Plus charitable trust has watched SunTrust (STI), which reported a terrific quarter, see its shares pretty much give up a few pennies a day, except for the days when it gives up $0.25 or $0.30. It's totally gut-wrenching. I look at the stock of Wells Fargo (WFC) and I wonder what happened to that spike to $53 on that fabulous quarter. KeyCorp (KEY), which was knocking on $15's door, now looks like it can slice through $13.


Meanwhile, Bank of America (BAC) got permission to raise its dividend for the first time in seven years -- obviously something that wouldn't have been done if it were about to be bankrupted by the U.S. Justice Department. Yet the stock is now below the level where it had been when the firm had gotten the go-ahead.


TheStreet.com logoWe know the degradation is occurring because interest rates on U.S. Treasuries have gone down to the point at which the earnings estimates -- which analysts set when these companies reported a month ago -- are now too high. They are all vulnerable to number cuts.


Here's what's more important, though: This was a group that, before the Great Recession, used to be the subject of endless merger talk. Shares of a bank such as SunTrust couldn't go down like this without prompting the worry that a name such as BB&T (BBT) would take it over. You could expect to hear a big Spanish bank knocking on the door of a bank such as KeyCorp at this point. First Horizon (FHN) would have been gobbled up by a name such as Royal Bank of Scotland (RBS). Wells Fargo would be snapping up banks left and right, and JPMorgan Chase (JPM) would be right there with it.


No more, though. The potential acquirers from Europe are shedding assets. The concentration of banks from the Great Recession is now way too great for any authority to bless a big bank buying a little one. So the group, without any yield support to speak of and no takeovers imminent, just languishes, as higher rates are needed before anything good can happen.


Industrial shares, for their part, seem frozen from the time when the MH 17 Malaysia Airlines flight tragically went down last month. But, in truth, they haven't really kept pace, and real doubt has emerged about the value of some of their acquisitions.


Eaton (ETN), after initially wowing the street with its buy of Cooper, is now reviled for the straitjacket this deal has put the company into. Ever since B/E Aerospace (BEAV) failed to get a bid earlier this spring, the whole aerospace group has been a pathetic place to be. The agriculture business, the mineral business, the industrial conglomerates: They have all done nothing to consolidate.


The one big deal, General Electric's (GE) buy of Alstom, came with so many restrictions that I believe GE's stock would have gone up if the company had walked away. Emerson (EMR), Parker Hannifin (PH), Danaher (DHR) -- they have all disappointed.  Even the good ones, such as 3M (MMM) and Honeywell (HON), inevitably retreated. I think this is strictly a sign that Europe has gotten uncertain since Russia and Ukraine have started going at it, and the industrial confidence has been sapped.


Yep, a deal-less sector in a deal-filled world is not going to get any takers. Banks can't, and industrials won't -- and that creates a huge void in these two gigantic segments of the S&P 500.


Jim Cramer headshot


Jim Cramer's Action Alerts Plus: Check out this charitable trust portfolio for the stocks Cramer thinks could be winners.





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60Comments
Aug 12, 2014 1:04PM
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What's "ailing" banks and industrials are Ivy League losers with degrees put in middle management then allowed to climb a ladder without a moral compass, ethics or ability to do any real work. They delegate, administrate and make bureaucracy... that's their "talent".
No bank directly services it's own portfolio or pays reasonable rates to depositors, it's all cooking bad books of fluffy fake transactions and kiting stock prices. 
Industrials are failing because they rely on data to deploy smoke and mirror money grubbing tricks instead of producing quality. They focus on ads and in-our-faces media marketing, rather than good business practices and stellar service. 
These sectors are cancer-ridden with cardboard cut-out Americans so self-absorbed that they can only give themselves more pay for being who they are, instead of running businesses that create economies, that sell products and lift them as enterprises.
No publicly-traded stock is worth a real cent. They are pure garbage run by egomaniacs and psychopaths. 
Aug 12, 2014 1:22PM
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What ails this country is the Fed keeping rates at historical lows.  If peoples money were allowed to make money see what would happen to GDP.
Aug 12, 2014 1:31PM
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So the reason stocks aren't going up in these sectors is because of a lack of M&A activity?  If you follow that logic to its conclusion, the recipe to create wealth is quite simple:

Unlimited paper assets
1 large pot
1 large spoon

Step 1:  Add papers to the pot.
Step 2:  Stir papers with spoon
Step 3: To create more wealth repeat steps 1 & 2 over and over again.....
Aug 12, 2014 1:00PM
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What ails the country is Bloated government...  and the lazy, LYING, arrogant, corrupt imbecile '57 states' Obama...


Remember his PROMISE not to take any vacations if elected?   He doesn't either, but the video of him making the promise airs all the time.


Get rid of every democrat on the ballot this November...

Aug 12, 2014 1:25PM
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The US is going from free market capitalism to government controlled capitalism, socialism, along with the EU, China and Russia.  The TBTF banks might as well have been nationalized in April, 2009. Industrials like GE are now TBTF conglomerates that nobody can really analyze. The US stock market is looking really tired and if rates go up the Boomers are going to bail big time. Maybe a good old fashion European War will liven things up?
Aug 12, 2014 2:50PM
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I can understand why Obama is such a lousy President. It's because the liberal worshipers give him a pass at every mistake. Its the same thing that happened when we integrated the schools. We lowered the expectations so black kids could pass instead of expecting them to step up. Now look where that has gotten us in public education. You liberals have done more damage to minorities than conservatives ever did. It will be the same way if we get a woman for president. Every time concerned citizens criticize her they will be labeled a "war on women" radical. You won't expect them to do the job of a leader. Screw liberals and their stupid ideas. Stick your left brain where the sun don't shine.
Aug 12, 2014 1:54PM
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It will make no difference in analyzing this and that.  Who cares?  Really, in 50 years more or less we are history as a republic/nation.  All this "market" stuff is entire nonsense.  Relax and enjoy!
Aug 12, 2014 2:15PM
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Banks and industrials are already consolidated to the point there are only a few major players.

And he wants more consolidation?

One bank and one industrial is the trust Cramer wants.  Because it will move that stock.

 Should be on our currency for Cramer's benefit.

 

Aug 12, 2014 3:45PM
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The Fed has kept interest rates too low, too long. Raise rates and people will start purchasing assets before rate really go back to where they normally would be.
Aug 12, 2014 1:55PM
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We don't have elected officials in this country we have purchased/sponsored officials. EVERY ONE of them is beholden to someone and many are beholden to multiple "sponsors" ...

Just last week Barbara Boxer combined with Harry Reid to speak to about 8 Senators (the rest were off on vacation) purely to ensure that CSPAN could not cover the Captitol Hill  testimony of the Palestinian boy who was beaten up by the israelis after his cousin was murdered by israeli settlers (they poured gas in his mouth and set him on fire while alive) ...this is easily verified via google search

Now even if you don't give a crap about the kids testimony it should concern you that 2 Senators are so beholden to the israelis they postponed their vacations to filibuster. 

The republicans are no better except they also kiss saudi @ss as well as israeli ...

I find it unfathomable that "We the People" are accepting of foreign governments and their US based "advocates" and allow this sh*t to continue.

American politicians should be concerned about US interests FIRST !! 
Aug 12, 2014 2:08PM
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Not getting any easier, like we said this morning, scumbags will do their best to take over and bring us down as much as they can; we were able to rebound a bit earlier but at 1335  hrs they called to accelerate again and down we are going....After the last couple of days manipulators do not want things to get out of hands and maybe end the day flat or a bit up...These last couple of hours they will bring us down sadly. We haven't given up but because of volume and the amount of these dirt bags on and off the floor things do not look promising...More after the close.
Aug 12, 2014 3:58PM
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 "The TBTF banks might as well have been nationalized in April, 2009. Industrials like GE are now TBTF conglomerates that nobody can really analyze."
$$$
When in doubt, shut them down... reconcile, define, regulate, supervise and monitor closely. The Gramm Leach Bliley Act wasn't written, slipped into other legislation and falsely enacted for the good of America. Eat the rich, they have only eaten prime foods and been massaged to succulent tenderness much like Kobe Beef. Slow roasted, baked or fried... tender to the bone. 
Aug 12, 2014 6:14PM
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mr cramer failed to tell you that bank earnings are near an all time record. i cannot speak for others, but i own tiny bits of two banks. and those small positions still scare. go plot investment returns on banks for the last 10 years. government regulation did not get them in the trouble that they got into. greedy, rotten bankers got banks in trouble. as for the industrials, they will be back. they have had a good run. however, international turmoil really hurts industrials
Aug 12, 2014 5:38PM
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That's a stupid logic. During the last market peak of 2007, there were many M&A; conversely, during the market bottom of 2009 there were none. By Jim Cramer's logic, you should buy the peak in 2007 and sell the bottom in 2008. For God sake, before listening to him, Google "Investment Scientist on Jim Cramer."
Aug 12, 2014 3:17PM
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I glimpse Jim now and then.  When I pass by he's always talk up Apache.  Always, shortly

thereafter, Apache takes a dive.  First time it cost me.  Never again.  I don't care much for

showman that relies on prompts in order to get his message across.  Honk, honk, Jimmy boy.

Aug 12, 2014 4:06PM
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AN ID CREATED STRICTLY TO VIOLATE THE CODE OF CONDUCT SLANDER THE POTUS AND SPEW HATE MESSAGES. BLOCK THE USER, THIS ISN'T FREEDOM OF SPEECH. IF YOU CAN'T SUPPORT YOUR OWN CODE, MSN... WHY HAVE ONE? 

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Aug 12, 2014 4:07PM
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At least we made it look somewhat respectable....Too many of this freaking scumbags doing what they do best so it was impossible to cross over to the green side but at least they did not get their way....Pieces of garbage make their living cheating and stealing from everyone else...Oh well, that is Wall Street, now lets wait and see what they pull tomorrow.
Aug 12, 2014 4:38PM
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I've organized a savings & loan and a commercial bank.  It isn't "consolidation" that made them successful, it was good operations, taking good care of customers.  Very profitable.   Add in my youngest daughter's involvement with a Florida bank that makes that bank a prime investment with its  real estate loan warehousing.                                   
Aug 12, 2014 3:35PM
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The USA is borrowing money from China to piss away on bombs so the Arabs can kill each other rather than having American troop doing the killing.  We will pay for the war we are funding all over the world!!!
Aug 12, 2014 1:58PM
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Brutus....Interesting Concept, it might just work...
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