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Cramer on BloggingStocks: Banks fail to raise money when they could

Posted Jul 25th 2008 9:55AM by Jim Cramer
Filed under: Industry, Market matters, Citigroup Inc. (C), JPMorgan Chase (JPM), Bank of America (BAC), Chesapeake Energy (CHK), Merrill Lynch (MER), Wells Fargo (WFC), Lehman Br Holdings (LEH), Cramer on BloggingStocks, U.S. Bancorp (USB)

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TheStreet.com's Jim Cramer says we're back in the same predicament, and more bank runs could be the result.

No one did a deal. The financials rallied gigantically, there was tremendous enthusiasm, and yet no bank was ready with an offering. It is amazing, especially when you consider that the natural gas companies, like Chesapeake Energy (NYSE: CHK) (Cramer's Take) and XTO Energy (NYSE: XTO) (Cramer's Take) were ready, despite horrible declines in their stocks.

The moment that Citigroup (NYSE: C) (Cramer's Take) got through $20 or Merrill (NYSE: MER) (Cramer's Take) through $30 or Lehman (NYSE: LEH) (Cramer's Take) through $20, they should have peddled billions more in preferred stock or even common stock.

Just spot 'em right out there. For about a week, people decided the rally could - and would - last if these banks had built up some fortresses. They didn't.

And that's why we are back in the same predicament. I don't want to write here which bank is next to fail. There are enough of them (particularly one that just changed its CEO) that the FDIC will have to have a plan to keep the bad loans and sell the banks, maybe not even with the branches because all that's worth anything is the deposits.


But if we only have Wells Fargo (NYSE: WFC) (Cramer's Take), Bank of America (NYSE: BAC) (Cramer's Take), JPMorgan (NYSE: JPM) (Cramer's Take) and US Bancorp (NYSE: USB) (Cramer's Take) as possible buyers, we are not going to be able to get through this period without some major runs on the banks.

The other day, the head of the FDIC was on Squawk on the Street and Mark Haines playfully asked her to give him the names of banks that they might have to seize. She was coy. I wanted to throw up.

Everyone that knows how to read a balance sheet knows there are some banks with non-performers that are skyrocketing past where the banks can be saved. And we should expect bank lines.

The math will be done: Indymac knocked off a bunch of capital, leaving less capital for other banks. People will freak out. We don't have emergency funding in place for the FDIC. So we could be right back to where we were that weekend when Indymac collapsed without a plan, which led to an aggressive seizure and more bank-raised capital.

That's what could have occurred. Now the shorts are back in control and nothing got done.

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RELATED LINKS:
All You Need to Know About Financials
Cramer: Housing Bill to Move Builders, Banks
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Jim Cramer is a director and co-founder of TheStreet.com. He contributes daily market commentary for TheStreet.com's sites and serves as an adviser to the company's CEO. At the time of publication, Cramer had no positions in the stocks mentioned.

Tags: bac, banks, c, chk, featured, jim cramer, JimCramer, jpm, leh, mer, shorts, usb, wfc

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DJIA-44.598,236.15
NASDAQ-22.411,774.11
S&P 500-6.38890.04

Last updated: July 06, 2009: 11:21 AM

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