When the San Jose Mercury News runs headlines like “Los Angeles Could Go Broke by June 30,” it may be hard to see why Cramer would dedicate an entire week to California-related investments. But he said the state’s budget woes are hiding a “monumental” turn in the economy there. He likened it to the US budget deficit, which isn’t an accurate representation of just how many American businesses are recovering.
California’s businesses are on the mend, too, Cramer said. And that’s why every day this week he’s giving viewers a new play on the state, each from a different sector. Monday was Costco in retail, Tuesday was Standard Pacific for the homebuilders, and today he shifted to the regional banks, where he likes City National the most.
Cramer said that the banks that deal with California’s consumers tend to be national names, such as Wells Fargo or US Bancorp . Those could work, but they aren’t pure plays on the state. For that, investors need to focus on publicly traded regional banks, whose primary customers are the Golden State’s recovering businesses. They try to win business banking relationships and then add the private banking of the owners and executives, who tend to be rich, high-net-worth individuals, on top of that.
There are three banks that qualify here: CVB Financial in Southern California, Westamerica Bancorp in Northern California and City National. Cramer said he likes CVBF as a speculation play on a rebound in the state’s hard-hit Inland Empire region, near San Bernadino, but City National is a much more conservative way to trade California’s rebound.
CNY holds $21 billion in assets and $17 billion in deposits, making it the state’s eighth-largest bank but the largest one that’s independent and publicly traded. City National has repaid its Trouble Asset Relief Program loans and also took part in a Federal Deposit Insurance Corp.-assisted acquisition. City bought the failed Imperial Capital Bank, negotiating $2 billion in new deposits and a favorable loss-sharing deal with the FDIC.
Also, CNY is well capitalized, it pays low interest rates to its clients (which translates into a higher net interest margin), and it runs a great wealth management business. Remember, City National handles the banking needs of businesses, but also the private banking of business owners and executives. Just 13% of those businesses right now are private customers as well, but management expects that number to double to 25%.
In the end, there are multiple ways to play California’s turn through the banks: There’s the consumer angle with Wells Fargo and USB, spec stocks like CVB Financial or a regional outfit like City National, which Cramer called “the best regional name in the state.” The question of how is up to each individual investor.
Cramer's charitable trust owns Costco.
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