The idea of a bank stress test is moot now, Cramer said during Thursday’s Stop Trading!, thanks to great news from Wells Fargo. The return of healthy banks should eliminate the need for government rescue, as these stronger firms will swallow up their weaker competitors.
Wells Fargo announced this morning that first-quarter earnings would reach a record $3 billion, or 55 cents a share. CFO Howard Atkins told CNBC the gains were due largely to the bank’s purchase of Wachovia in late 2008. Another good sign: Wells Fargo loaned $100 billion in mortgages this past quarter, and has another $100 billion backlog, both signaling a rebound in housing. The CFO also said the bank is hoping to pay back Troubled Assets Relief Program money as soon as possible.
“This is a serious, serious game changer,” Cramer said.
Cramer has often pointed to the bailout model used during the savings-and-loan crisis of the late 1980s and early 1990s. Ailing banks were often split up, their good assets sold to stronger firms and the bad parts acquired by the government. Wells Fargo’s resurgence puts it in the good-bank category, along with JPMorgan Chase.
The government’s stress test had been created to see which banks would most likely rebound if given federal help. Now that some banks are showing signs of strength, there is probably little need for Washington to inject more cash into struggling institutions.
Cramer predicted that Wells Fargo would earn between $2.30 and $2.35 a share in 2010, saying that the stock deserves an 11 or 12 price-to-earnings multiple. He thinks WFC will climb to $26.
Watch the video for Cramer’s take on why Textron’s near 50% jump on Thursday is a sign that “t he market’s enjoying a different tone.” As further proof, he pointed to the action in stocks like Black & Decker , Whirlpool and Fortune Brands .
Cramer's charitable trust owns JPMorgan Chase and Wells Fargo.
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