Takeovers galore in the bank patch

We are about to see real lending in this country as well as several acquisitions in the sector.

By Jim Cramer Feb 14, 2013 10:27AM

Bank sign John Foxx Stockbyte Getty Images

thestreet logoHave 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.
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.




More from TheStreet.com

Feb 14, 2013 1:40PM
We've been trying to hang in there...At 1230 hrs manipulators called to accelerate the selling so we are drifting down once again....Lets see if anything positive can be done this afternoon...More after the close. BTW, volume still low.
Feb 14, 2013 11:20AM
Feb 14, 2013 12:25PM
Be cautious today, we said yesterday these scumbags would come out of the gate selling this morning and they did...We just recovered a bit, all the signs of a sucker's rally though...Lets wait a bit and see...We are all in the red again...Just be careful...More later.
Feb 14, 2013 11:38AM
Somebody said once....'Go to the Banks'..."That's where they keep all the money."
Feb 14, 2013 11:44AM

I just want to know when they are going to start spreading it around to the common people..?


That seems to be part of the problem, right now.

Feb 14, 2013 11:22AM

If I recall in 2007 there were a ton of mergers/acquisitions that helped push the market higher.  Then about a year later we know what happened, are we seeing this again?  Seems like these deals always tells us it's the beginning of the end.  Maybe 9 months to a year before the next major double digit correction?

Until then maybe ride the higher waves but be ready to bail, perhaps getting out in 8 months and not trying to chase the last 1 or 2 percent and risk losing much more.

Feb 15, 2013 12:46PM
Once again be cautious this morning...Don't get too excited because we are up a bit....Manipulator do not want to go into a 3 day weekend without doing their thing....Volume a bit higher today....Just play it safe...More later.
Feb 14, 2013 6:26PM
This afternoon the market showed its resiliency; what appeared to be a down day turned into a not so bad one....We take it any time....Again, we are so glad these markets are not correlated to the economy. it would be a disaster....Now, remember, people are making less money, being taxed more. it will catch up sooner or later, more sooner than later to be truthful so, be cautious, the future not as rosy as we'd like.
Feb 14, 2013 12:04PM

if you want a history lesson listen to this hack.......he has no idea where the market is going


Feb 14, 2013 11:53AM
sounds like now it the time to sell all your bank stocks then?
Please help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease use this form to notify the moderators. They will investigate your report and take appropriate action. If necessary, they report all illegal activity to the proper authorities.
100 character limit
Are you sure you want to delete this comment?


Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.


StockScouter rates stocks from 1 to 10, with 10 being the best, using a system of advanced mathematics to determine a stock's expected risk and return. Ratings are displayed on a bell curve, meaning there will be fewer ratings of 1 and 10 and far more of 4 through 7.

123 rated 1
262 rated 2
480 rated 3
651 rated 4
649 rated 5
629 rated 6
616 rated 7
496 rated 8
346 rated 9
111 rated 10

Top Picks

TAT&T Inc9



Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.

Contributors include professional investors and journalists affiliated with MSN Money.

Follow us on Twitter @topstocksmsn.