Monday, May 18, 2009
(Cont'd from above)...

Jim (cont'd):   

The government told the nine banks that passed the stress test, that they did not need to raise more money… well, that is just the greatest news of all… but it did not matter, because seven of those banks went right ahead and raised a bunch of money anyway… and now they have double the protection, and much more flexibility… as they can use their new capital to do things like make acquisitions, rather than hoarding it, for potential losses in the future… or lend money, because I tell you, pay the depositor nothing, you lend up here, that is called net interest margin… so who do I think are these belt and suspender banks that you should buy… alright, I have three of them.

BB&T, Bank of New York, well actually I will give you all of them… Bank of New York, Capital One, Goldman Sachs, JPMorgan, State Street and US Bancorp are the ones that have belts and suspenders… and with one exception, I will call them the new winners… and let me throw in Northern Trust, even though it wasn’t big enough to be stress tested, as it is very similar to both Bank of New York and State Street, and it raised money that it did not need… so how do these all stack up against each other as stocks… what are my favorites, okay unfortunately because I love this bank, but my least favorite is Capital One… as the President virtually declared war on credit card companies last week… particularly the ones that he thinks, I do not, run rough shod over their customers… which is unfortunate for Capital One, if they do not charge a lot how can they lend to these people… the business will go away… but the President is not sensitive to that… and they have to charge enough money to offset the defaults in the credit card business if they are going to continue to stay a robust institution… so Capital One I cannot recommend because of the President.

Of the rest, there is no doubt that the strongest companies in the list are Goldman Sachs and JPMorgan, both of which I own for my charitable trust, ActionAlertsPlus.com… but that does not make them the best ones to buy… some of these have moved, what we really want right now are the belt and suspenders banks that are the cheapest stocks… the ones with the most potential upside… and on that score, three of these banks jump out at me… which ones, okay… I have done a lot of work on this.

Number one is State Street… which just announced a $1.5b offering this morning, should come real soon… number one, no question… as a matter of fact that I like it so much, I like it so, so much that I bought it for my charitable trust… I bought it on the news of the offering, on the news of it… pretty good, the bank along with the Bank of New York, which I also really like if not as much as Northern Trust… are what is called custodial banks… as in the custodians of money of other banks, mutual funds, and the very, very rich… but they stumbled by attempting to get higher returns to make even more money off of the money that they had in custody… by setting up asset backed securities, it was a big mistake… it was a conduit thing… their core businesses were very strong, though, the whole time… but they things stymied by problems with these different securities that they set up… but now that the market is open, thanks to the Feds TALF program, and their biggest liability should soon become an asset… that is right, what was going on will become good because people have already marked down their product… they have marked down their loans, so as things come back, they are going to be able to show better earnings.

State Street is the best run of the banks that were not hurt… and it does not need the actual mortgage market to recover, it just needs the balance that we are seeing in the asset backed market to reassert its dominance and make a whole lot of money… State Street intends to use the money that is raising to pay back TARP, and to fix up its balance sheet… remember, it did not need to raise money… this stock never should have been pushed down so far… and even with its $3.28 gain today, it is still the cheapest of the winners.. and that is the main reason that I bought a slug of State Street for the charitable trust...

Number two is BB&T, one that I talked about last week… this one raised $1.73b in stock, at $20... a real great deal for those who bought in the secondary… as well as $800m in debt… BB&T based in Winston Salem, NC was at one point the premier banker in the south… before it stubbed its toe, in a serious of ill-fated forays outside of its own native region, including the deadly Florida market… but now BB&T has to be the FDIC’s fave for that region… any bank that raised capital when it did not need to gets most favorite nation status from the regulators… that matters… because it means that BB&T is in a position to buy all of the failed banks in the south to become the dominant southern banker… eclipsing Sun Trust, which remains a troubled bank… I think that BB&T will follow in the sainted footsteps of Fleet Bank in the late ‘80’s and early ‘90’s when it used the Savings & Loan crisis to become the largest bank in New England… which means that BB&T represents a twice in a lifetime opportunity to try to make some money, hand over fist… just as investors in Fleet did with a 500% return… if you do not believe me, and think that I am being too bullish… I want you to check out this weeks Insana Insight, by Ron Insana, friend of CNBC… he has got a piece of RealMoney.com, the subscription side of TheStreet.com, where I am chairman… Insana agrees that the situation right now is in analogous to the unbelievable period where bank stocks made you rich as gracious, when no one believed in them… that period was 90, 91, he has got some great articles, some actual kind of like at the moment articles from 90 and 91, that shows you how negative people were… it is incredible, it reads like it would today.

The number three stock in the new bank pecking order is US Bancorp… which sold $2.5b of stock at $18 a share, and a billion in debt… US Bancorp is the cheapest of the banks that do not need to raise money… but yes, it is the most speculative… this is a well run traditional bank but it does need housing to bottom to beat the foreclosure drag… unlike, State Street… and unlike BB&T honestly… it made the cut because it has not rallied… with the exception of the might $1.68 move today… since the stress tests results in the capital raise, it has really been sitting there… USB has not done well… but at the same time Warren Buffett and Premature, as Berkshire Hathaway just increased its stake in this bank in this quarter, should make it shine… this one would have been my favorite pick if it didn’t have so many looming defaults… or if it had not bought the totally toxic Danley Savings, a small bank that was never the less a big risk… US Bancorp does need the Cramer housing bottom to come true… but since it looks like it will, I am not as worried about this very inexpensive bank… but my reluctance to recommend US Bancorp is in part, because I feel that if I am going to go for broke on housing I would rather buy Bank of America on the equity offering that I eventually expect to occur… Bank of America has more leverage to housing, and you would buy US Bancorp because you need leverage to housing.

Here is the bottom line…

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