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Hudson City Bancorp is best of breed not just because of its upside potential, but also because it's so well protected against the downside, Cramer told Homegamers Thursday. So even if the Federal Reserve decides not to cut rates Dec. 11, Hudson should withstand the fallout.
But Cramer fully expects the central bank will cut. And that means bank stocks go much, much higher. Why? Because the Fed sets short rates, which are the interest rates a bank gives on a money-market account or certificate of deposit. Lower rates mean banks pay out less on a CD, but they can loan at a higher price. So the more the Fed cuts, the more the banks profit.
Hudson City [HCBK
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], and CEO Ron Hermance in particular, impressed Cramer with its solid lending practices. "We don't do subprime," Hermance has said, and it shows. Non-performering loans make up only 0.15% of the Hudson City's assets. Even Wells Fargo [WFC
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], another great lender, has 8% non-performing assets.
Hudson City is a consumer-friendly bank that doesn't believe in "no money down," and it never bothered to lend in speculative areas like California and Florida. Instead, it focuses on dependable middle-class and upper-class buyers in New Jersey, Connecticut and New York where there's much less risk.
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Even the mortgage-backed securities Hudson City owns are tied to Fannie Mae [FNM
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] and Freddie Mac [FRE
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], which means they're agency guaranteed. (For more on government-sponsored or affiliated entities, pick up a copy of Cramer's new book, Stay Mad for Life.) These mortgage backs have been the downfall of plenty of companies in the sector.
The bottom line: Hudson City has solid footing in an otherwise shaky market. If the Fed cuts, investors should make money. If the Fed doesn't cut, Hudson City is the least exposed to the bad loans that are taking out so many of the bank's competitors.
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