Regional banks might be the market’s best speculation stocks right now, Cramer told viewers on Friday. These smaller, stronger players are in perfect position to scoop up the assets of their bigger but weaker peers.
Cramer has already endorsed Ohio’s FirstMerit, and today he added First Niagara Financial Group to the list. This upstate New York-based bank just added $4.2 billion in deposits, 57 branches and $839 million in business and commercial loans in Western Pennsylvania to its portfolio thanks to the PNC Financial Services Group -National City merger.
The fact that First Niagara’s stock is actually up, rather than down, after a $361 million equity offering on Monday is reason enough to like the stock, but this acquisition is a tremendous opportunity for the company, Cramer said, and its investors. Anti-trust regulations forced PNC and National City to sell some of their assets, and First Niagara won the bid for them. Now FNFG is the third largest bank in Western Penn State.
Cramer likened the potential for a move in FNFG to a similar one in Chattem. Johnson & Johnson unloaded a number of key brands at the government’s urging, and Chattem picked them up on the cheap. Barely 18 months later this $34 stock had jumped to $82. Sure, Chattem is a consumer-goods company and we’re talking banks here, but the thesis works on both counts, Cramer said. So First Niagara at $13 a share is a steal.
You also have to like FNFG’s readiness to pay back the $184 million it borrowed from the Troubled Assets Relief Program. This is one bank, Cramer said, that isn’t stressed by any government test. Plus, First Niagara has proved itself a responsible lender, holding much lower charge-off and nonperforming-loan ratios than its peers. And lastly, the $839 million in acquired loans contain no subprime, home-equity or residential-construction debt, nor are they outside the bank’s geographic footprint. They are all solid middle-market commercial or small-business loans.
So buy First Niagara, Cramer said, if you’re looking to speculate on a growing regional bank.
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