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Cramer: Higher Rates Should Make These Banks a Buy

Thursday, 20 Jun 2013 | 6:16 PM ET
Higher Rates to Help Regional Banks?
Thursday, 20 Jun 2013 | 6:15 PM ET
Can regional banks keep rallying with rates headed higher? Mad Money host Jim Cramer explains why these banks can make you money.

(Click for video linked to a searchable transcript of this Mad Money segment)

The market seems preoccupied with all the ways higher rates could hurt stocks. But Cramer says, it's not bad news for everyone.

In fact, once the current sell-off abates, he thinks it will be very good news for regional banks. "I am talking about banks such as BB&T, Huntington Bank, M&T Bank , Zions, and Peoples Bank of Connecticut to name but a few," Cramer said. "I am talking about bedrock local banks."

As rates march higher Cramer expects to see these banks generate bigger and bigger profits.

"Largely these banks make their money from three areas: fees for services, loans, and certificate of deposits," Cramer explained.

And it's that third revenue stream - certificate of deposits - that higher rates could boost dramatically. Here's why:

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According to Bankrate.com, on average, banks are paying about .81% on 5-year CD's. Typically banks turn around and put that money in Treasurys. As the bond market drives Treasury yields higher, banks can now park that same money in Treasurys, and get greater return.

Joshua Hodge Photography | E+ | Getty Images

In other words, "banks will now make bigger profits, simply by turning the lights on and capturing that increased spread between your CD versus higher yielding Treasurys," Cramer said.

Although the spread or net interest margin isn't terribly big, Cramer says it's the relative increase that will matter to Wall Street.

Just a short while ago, regional banks were too hot to handle. But after the Fed statement and the Bernanke press conference the Street's outlook should start to change. "These stocks had been red-headed stepchildren for ages," Cramer said. "Going forward they look like the place to be."

But don't hit the buy button just yet. "We're still very much in the blast zone," Cramer said.

Call Cramer: 1-800-743-CNBC

Questions for Cramer? madmoney@cnbc.com

Questions, comments, suggestions for the "Mad Money" website? madcap@cnbc.com

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ZION
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