Almost everyone thinks the Volcker rule is negative for bank stocks. Not Jim Cramer.
Named for former Federal Reserve chief Paul Volcker who championed the reform, and finally approved on Tuesday by five Federal agencies, the rule cracks down on proprietary trading done by banks.
Essentially the Volcker rule prohibits banks from betting on financial markets with their own money.
If the rule stymies the ability to generate profits, it's necessarily negative for shareholders, right?
Not so fast. Cramer doesn't think it is.
Since the worst of the downturn, the "Mad Money" host says a pall has been hanging over bank stocks. Investors have approached the sector with caution fearing unexpected developments could surface at any time and threaten share price.
"Investors became worried this cohort was filled with unregulated gunslingers who weren't being reined in by anyone," Cramer explained.
Those fears were realized in 2012, when JPMorgan announced a $6 billion trading loss dubbed the "London Whale" because of the huge positions the bank took in credit markets.
However, the Volcker rule changes the likelihood that something similar surfaces in the future.
Now there's mandated accountability. "Now those who don't play by the rules will lose their jobs or perhaps be prosecuted," Cramer said. "That's a very big change."
And because of that change, Cramer thinks big banks will command greater multiples with investors no longer fearing nasty surprises.
"I think that we will now presume that there is less rogue behavior, we will be begin to value these stocks like companies with steady income streams and their value will increase, perhaps dramatically," Cramer said.
"Where would JPMorgan be if the Volcker rule had been a reality a few years ago? I would say probably at $65, almost ten points higher. Where would Goldman Sachs be? Maybe as high as $200," Cramer said.
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"Most media reports have been very negative," Cramer added. "But the earnings stream is now indelible. And the business is much easier to understand thanks to the Volcker rule."
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