Have you ever seen a more downgraded group than the banks? Yet they won't quit. I count downgraded bank after downgraded bank. Yet it's such a silly call to do so because we are about to see real lending in this country, and when that happens the whole focus on net interest margin will go away. The new focus will be on takeovers as book values are scrubbed clean and new colossuses can be built.

Consider the case of HomeStreet Bank (HMST), one of the best-performing IPOs from last year and a hungry regional bank with a book value that is 20% below its stock price.

When you have banks that are trading north of book value and banks trading south of book value it can often be immediately accretive for the expensive bank to buy the cheaper one.

The biggest bank that sells at a premium is Wells Fargo (WFC), and it owns more than 30% of the mortgage market. So that won't happen.

But a bank like HomeStreet can start doing fill-in acquisitions.

I am more interested in banks like First Horizon (FHN), Key (KEY), Synovus (SNV) and Regions (RF). These are all banks that were hobbled during the great recession and are scrubbed clean, but have not yet turned on the lending jets as HomeStreet has. Remember the economics of banks. Net interest margins go down if banks just sit on the cash. They can go up if the banks lend and if interest rates go higher those loans can reset.

So, let's take a bank like Regions. It could provide a terrific buy for Comerica (CMA) or PNC (PNC), banks that need to start expanding again lest they continue to fall out of favor with the analysts even as they do not come down on the myriad downgrades. I know the Street has turned on KEY, an Action Alerts PLUS name, but there's so much that the bank can do to bring out value, including sell its considerable Northwest franchise to HomeStreet. Of course, BB&T (BBT) can turn around and buy First Horizon tomorrow.

• Also see: 'Mad Money' recap: what moves stocks

One other thing to keep in mind. BBVA (BBVA) owns a remarkable franchise in Compass, which has filled a banking vacuum as you can see from Morgan Stanley's timely upgrade this morning. BBVA remains a terrific stock to own as a way to play the rebound in Spain, but it can also afford to acquire First Horizon or Synovus or Regions and get that growth going. Banco Santander would like to spin off its U.S. business to raise cash and it, too, is a natural acquirer.

As the financial sector hits four-year highs the signs are clear. More lending's coming, so the banks that were passed by as Wells Fargo bulked up are now ready to acquire and be acquired. The fact that Key or First Horizon has not been nicked even by multiple downgrades speaks volumes for what is about to occur.

Takeovers galore in the bank patch. A necessity and an opportunity.

 

Jim Cramer is a co-founder of TheStreet and contributes daily market commentary to the financial news network's sites. Follow his trades for Action Alerts PLUS, which Cramer co-manages as a charitable trust and is long KEY.

 

 

 

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