Lots of stress over ho-hum bank tests
Investors won't be selling out of US financial stocks to buy up European offerings.
By Jim Cramer, TheStreet
We all know why the stress tests performed on Europe's banks didn't "count." They didn't count, because there is no way the banks in Europe aren't "as bad as" or worse than many of the banks that raised a boatload of equity in the United States.
Is Banco Santander (STD) "better" than JPMorgan (JPM)? Is Banco Bilbao (BBVA) in better shape than BB&T (BBT)? Do we think the big regional banks in the United States weren't better capitalized before raising funds than most of the German or Spanish banks?
It is true that our banks' stocks have had a hard time getting out of the way since they raised the capital, but a lot of that might have to do with the endless series of changes from Washington involving interchange fees, credit card rules and, of course, financial regulation. Anyone listening on any bank call knows that the earnings power of American banks has been severely crimped by the Congress -- at just the time we want banks to be lending.
Still, the idea that the European banks only need to raise a few billion euros' worth of capital smells to us like forgiveness and a "look the other way" attitude.
Here's where I come out. The U.S. banks, even the ones that showed stellar declines in nonperforming loans, aren't doing much at all. The sector is soggy and the dividends nil. You combine a group that, after raising massive amounts of capital, has lots of equity just sloshing around, with numbers that are quite uncertain because of Washington and an unemployment rate that is stubbornly high, and it doesn’t amount to anything you want to pay up for.
However, to the extent that you want to own well-capitalized banks as opposed to undercapitalized banks, you will want to buy U.S. banks over those in Europe, betting that with any employment growth you will see a move.
Here's the good news: Historically with banks, when loan losses peak, you want to buy. They clearly have peaked at Wells Fargo (WFC) -- a good lender that took aggressive actions and is almost done integrating Wachovia -- and they haven't peaked at Bank of America (BAC). Wells Fargo doesn't have financial regulation issues; Bank of America does.
That's why I would say the turnaround is here for WFC and still to come for BAC. But bank investors will not have to take down big slugs of equity coming from Europe, which could have weighed on the group once more.
The bottom line: People didn't trust the European banks before the tests, and they don't trust them now. But there's not a lot of new equity coming out of them, and that makes people feel better about our bank stocks versus theirs.
In other words, as Doug Kass suggested last week, despite all the hoopla, the stress tests were basically a nonevent. They could be a mild positive simply because there's not another tranche of equity coming from Deutsche Bank (DB), Credit Suisse (CS), Banco Santander or BBVA that would cause our investors to sell out of BB&T, BAC, WFC or JPM to buy shares of European banks in the hole.
Random musings: Beware of any housing data interpretation that comes out negative today, because people are prepared for the negative.
At the time of publication, Cramer was long Bank of America and JPMorgan.
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