Investment banks earning huge fees

It may just be that the remaining firms that are the winners here.

By Jim Cramer Mar 7, 2013 10:26AM

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Bank sign John Foxx Stockbyte Getty ImagesFees. Huge fees.

That's what I thought of Wednesday when David Faber chatted with me about Verizon's (VZ) potential for buying out or buying Vodafone. You get a $100-billion deal, lots of banks make lots of money with very few people doing the actual lifting. Gigantic, relatively risk-free, high-gross-margin business.

Huge fees.

That's what I think of when I see the acquirers and the investors circling around Dell (DELL) of all things. Dell -- a played-out old tech stock that hasn't been able to move aggressively into higher value-added portions of the tech food chain. Everyone has to have a banker. Everyone has to have some capital. Not everyone is going to win Dell. But if you like Dell, could I interest you in a little Hewlett-Packard (HPQ)? HPQ has hundreds of thousands of employees and many different divisions that don't belong under one roof. Call a banker. More fees coming.

Wednesday night Hertz (HTZ) announces a 60-million-share stock offering. That's a nice-sized deal, big enough to incur, you bet it, huge fees. Like the MGIC Investment (MTG) deal for 135 million shares at $5.15 a piece that just priced, a mortgage insurer with capital that has made it. Or like Radian's (RDN) deal the other day, 34 million shares at $8. Nice. Or like the 10 million shares of J.C. Penney (JCP) put up by Deutsche bank for a nice quick pay day.

Meanwhile, the bond issuance comes hard and fast daily. We have had so many billion-dollar issuances by major borrowers in the last month we don't even bother to notice. But the capital is almost free courtesy of Ben Bernanke and the only real cost is, of course, the fees the bankers are paid.

The endless deals in the oil patch, the Berry Petes (BRY), the Copanos (CPNO), the pieces of Chesapeake (CPK) being sold, the Chinese incursions, they all require the same thing: bankers.

I know the housing cycle's back, which encourages me to like the regionals, many of which slowly, but surely, are creeping higher. I think those break out soon, but they are still trapped by the fixation on net interest margins, which is like being trapped on the fixation of not wanting good earnings, just good revenue growth, which in the end didn't matter one whit with the revaluation of the consumer-packaged-goods plays.

But it may just be the remaining investment bankers that are the winners here. We have all become conditioned that Dodd-Frank wiped out the principal source of income for these firms, the ability to play hedge fund with their own capital. But believe it or not, the real steady stream comes from helping other companies raise, create and use capital. That's an agency business with huge gross margins that carries very little risk and is capable of getting a real price-to-earnings multiple, not the endlessly shrinking one that we have seen in this business. Plus, it doesn't hurt that the loss leader European bankers have pulled back while the Lehmans and the Bears disappeared forever.

That means JPMorgan Chase (JPM), which is a pretty darned hot stock, Morgan Stanley (MS) and Goldman Sachs (GS) are going to see a sudden spurt from their traditional businesses. Morgan Stanley's still caught in the transition from hodge-podge to retail broker with some institutional services. J.P. Morgan's in very good shape. Goldman? They just named Greg Lemkau as head of mergers and acquisitions and he's got a very fresh and aggressive attitude with a total global focus.

Peek under the shroud of Dodd-Frank. You know what you see? Investment bankers making money for shareholders without the baggage of huge leverage, exactly the stuff that teenage, not single-digit, price-to-earnings multiples are made of. Goldman Sachs ten-times-a-probably-way-too-low 2014 number? Makes sense if they are swinging around billions of their own money. Way too low if they are doing high-quality relationship banking, which is exactly what's starting to happen right now.

cramer

 

 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 has no positions in stocks mentioned

 

 

 

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22Comments
Mar 7, 2013 11:30AM
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Well think it's time for a shower, go up to the Golf course/club and play some 8-ball with the old guys.

 

Not gonna read or comment on a lot of blow about the Markets or the Government..

Not doing any trading, I'm broke; Well almost.

Pissed at Casinos for a week or two.

Taking a break on working on house today..Just gonna relax..

Miss Lilly going into the City, to get all her pet food and a couple loss leaders.

 

I shall leave CGT1,ABS and Mirage in Charge, and the rest of you can hold their feet to the Fire.

I enjoy being a Re-Tired Old Guy...It's fun somedays.

Mar 7, 2013 12:45PM
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Ok... so this is not a repeat of my idea from yesterday just a little tweak.

 

So assuming Affirmative Action has been helpful maybe changing the SBA bias permanently would not float. So how about a limited time lifting of the SBA rules to add white men to loan opportunities? All that money at the banks needs a bigger pool of borrowers.....

Mar 7, 2013 10:58AM
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gee.  the concept that the banks will be making more money!  thru FEES?  what a concept! 
Mar 7, 2013 12:37PM
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You know who doesn't pay all these huge fees?  Smaller, privately held businesses.  Just another advantage to staying smaller and privately owned.  With expanding gov regulations, hassles with disclosure and SEC compliance, etc... the era of the mega-corp may be slowly coming to an end. 
Mar 7, 2013 2:54PM
Mar 7, 2013 1:26PM
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We've been hanging in there, moving sideways is good....Still three and a half long hours to go though...Be cautious...Jobs report tomorrow, could be interesting.
Mar 7, 2013 12:50PM
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Verizon- is still using cram-down tactics. Buy the phone but if the poor salespeople don't con you into all the (way marked-up) accessories, they are tortured or worse, have to listen to pissant management with delusions of sales skills.Next time the low-life CEO calls you-- hang up, unless he's another one of you Ivy League loons-- then it makes sense.

NOT WISE narrowing down and naming the enemies of the world-- big banks. No, they won't win in the end. They will CAUSE the end and go down ugly, but survive? Nada. Do we worry about bankers? No. We can BBQ the politicians they own and learn all we ever need to know. Get your head out of your asss today. The world is at war with financial tyranny. Time to start thinking about everything else and try to save it before banks ruin the world completely.

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In the good old days all this was done thru the back door.

 

You borrowed a few million (not billion money was more valuable back then) dollars and hired your loan officer's nephew for $150,000 a year.

 

Now you borrow a few billion dollars and you pay the bank a 3 percent fee of like say $300,000,000 cheaper to hire the nephew. And as a bonus sometimes the nephew was a good worker.

 

Yep that $300,000,000 fee could have , should have and would have gone to hiring 2,400 people for a year making $125,000 but for the greed of one person getting the fee at the bank.

 

Anyway the whole banking system is now more unstable then in 2007 and soon it will collapse and people are going to say no way. Just be prepared.

Mar 7, 2013 3:15PM
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At 1400 hrs there was a call to sell so we are dropping slowly but surely...Two long hours to go, be cautious, the bad guys trying to take over things down here...More after the close.
Mar 7, 2013 10:47AM
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Yup another day....In the the Land of the Free, Home of the Brave..

 

We woke up this morning, sucking in air..........Wahoooooo !!

Mar 7, 2013 11:06AM
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This morning feels a like like yesterday morning...Opened up, and started drifting down, at least we were able to hold the Dow and S&P in the green...We will see today, plenty of folks trying to bring this market down....Hopefully we will be able to hold again...More later.
Mar 7, 2013 11:04PM
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The market once again showed resiliency, not that these scumbags didn't try...Oh well, we will see what happens tomorrow with the jobs report...Be ready for anything and everything... Be cautious.
Mar 7, 2013 3:07PM
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Luv of $$$....It's ...INLAND REAL ESTATE CORP. (IRC) it is a type of REIT.

Headquartered in Oakbrook, IL.

 

Properties in and around Chicago, some in Indianapolis.

Pays about 6% div return, I believe on a monthly basis ??

It is pricey right now..Around $9.80 p/s.....52 wk low around $6 and something.

I have it on my watchlist..

With tentative ideas about buying some....Maybe on a dip..

I think it was or is worth looking at...

And maybe a worthwhile place parking some cash temporarily...Don't listen to everything your Broker says,she may not be as bright as you??.....But take a look and see what you think.

 

Now that you had to go and mention, me and my rider might go up North and try to get Rich..

She's back from the City..I got home from playing pool...

Casino report later....Ciao.

Mar 7, 2013 12:32PM
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TOG (if you get back here).....

I could not locate anything such as IRC REIT.
I will continue to check, however, as you indicated,
they have 'great payouts', which leads me to be
more suspicious of it. 

Recall, that is the saying on all the casino doors?
: "Our slots pay double", "loosest slots in the world
this side of Lindsay Lohan" and related adverts.

I will stick to NLY and AGNC, tried and true.

Have a good day ~ LOM.

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