FDIC Anoints Superbanks - Cramer's Stop Trading! (9/26/08)

Recap of Jim Cramer's comments on Stop Trading! Friday September 26.

Superbanks - Wells Fargo (WFC), JPMorgan (JPM), PNC (PNC), U.S. Bancorp (USB)

Opponents of Treasury Secretary Henry Paulson’s $700 billion bailout plan are worried about sweetheart deals for Wall Street, but banks like JPMorgan Chase are coming out on top regardless. News came across the wires Thursday evening that JPMorgan would be buying the deposits of Washington Mutual for $1.9B after the FDIC seized the failing bank. We're so worried about the purity of the bill that we don't realize that right in front of us, the FDIC is anointing a few banks and giving them the deals of their lifetime," Jim Cramer said. The deal’s a huge win for JPMorgan, but if Paulson’s plan were passed, taxpayers – and not just JPM shareholders – also would be winners here. Paulson’s plan calls for the government to take an equity stake in any company it bails out, much like the 80% stake it took in AIG after providing that company with $85 billion in capital. Cramer’s been a supporter of the plan because these arrangements mean that, instead of taxpayers merely paying for a rescue, they could possibly make money off it. The banks benefiting the most right now, he said, are Wells Fargo, JPMorgan, PNC and U.S. Bancorp. They are in a good position to swallow up market share as lesser banks collapse.

Raise the FDIC insurance to $1million

Cramer called for the limit for FDIC insurance to be raised to $1 million. Otherwise, he said, "we're just going to have a series of super banks, and everybody is going to pull their money out of every other bank." "That's it," he said. "People will only trust having their money there until we get FDIC insurance. We are having a nationwide pullout of deposits except for at those institutions, where everyone knows they're doing well." He criticized Congress for not acting faster and passing a bailout plan. "It's obvious that all the benefits of these mortgages are accruing to a handful of banks as opposed to you the taxpayer," he said. "But you know, they don't seem to get that, because they've never hit up a stock quote in their lives." The super banks "are going to own the world unless we pass that bill," he said. “They simply don’t understand the way the markets work,” Cramer said of Congress’ apparent lack of understanding of just how important this legislation is.

Seeking Alpha publishes a summary of Jim Cramer's stock picks every day including: Mad Money Recap, Lightning Round and Stop Trading!

Get Cramer's Picks by e-mail -- it's free and takes only a few seconds to sign up.

Seeking Alpha is not affiliated with Jim Cramer, CNBC or TheStreet.com

Comments

[ussmls7:]

Wall Street & Congress has most gavitity pull in the World,the whole place SUCKS!

2008 Sep 27 12:13 PM

[Emerald:]

Cramer is talking his book, as usual. Image what his ratings would be if we had a real crash and his viewers didn't have money to invest? No mention of JPM's derivatives exposure. PNC and USB are too small to be so-called superbanks.

2008 Sep 27 03:28 PM

[hwood007:]

No mention of BoA, wonder what the great sage thinks of BoA now?

2008 Sep 27 03:48 PM

[macroguy:]

Why do we need 2800+ banks in the US? We don't. The numbers will drop but the regulators will become even more important.

2008 Sep 27 04:59 PM

[Did U Think...:]

I am 100% against anything Cramer, Paulson, ernanke or Bush say. If they say it's bad for you then you can believe it's really bad for them and good for you. If they say it's good for you then it really means bad for you.

I have lost all confidence in our gov't leaders and in our financial system and in the USD. I gold I trust because the rest of it is one big GRIFT.

2008 Sep 27 05:35 PM

[MoneyManager:]

There will be nassive consolidation, anyway. What we need is a pre-emptive ruling to be sure the monopoly power is contained, but it is unclear why the bill's delay causes super-banks to emerge. I say the Congress should just factor in some anti-trust protections.

2008 Sep 27 09:01 PM

[grbn:]

once again cramer wants the government to bail the markets out because it's becoming too difficult for him to pick stocks. "there's always a bull market somewhere" unless you have to work for it.

2008 Sep 27 10:19 PM

[nyka:]

Wasn't Wachovia rated a "buy" by Cramer less than 10 days ago. I recall him being totally enamored by CEO Steele.. Another good call by the circus barker.

2008 Sep 27 10:23 PM

[Pessimistic...:]

yup.. he had WB as rated to do well in the aftermath of the "bailout" I think he still has it as faring well if the said bailout happens.

2008 Sep 28 12:04 AM

[Ishortyou:]

in regards to Wachovia they are serveral tactics that it can apply to solve its book of business facing the main problem which is the run of the bank phenomena. Most of those run of the banks are from payrolls from small business and depositors of more than 100,000 dollars that are running like chickens without heads. 1. Wachovia is doing a good tactic on reassuring their depositors to install confidence in its business through phone calls, personal visits-contacts, adequate interest on deposits, etc, etc. 2. Now that the goverment is willing to buy bad assets on warrants, they can sell the trouble assets and delever quickly from them and sell part of their equity without stockholder dilution to the government to boost confidence. 3. Make a deal with FDIC of NO intervention as this is done. 4. Keep working on their good loans to boost capital/liability ratio as well as reducing business expenses. With this strategy is likely to succed.

2008 Sep 28 08:33 AM