One part of the Dubai World story that’s gone untold, Cramer said Thursday, is the “financial idiocy” of the European banks behind some of the emirate’s loans. British firms in particular lent billions of dollars that, at least in part, went to Dubai’s now famous artificial islands.
Cramer recognized the hit that Dubai World’s potential $60 billion default put on the markets, but he wanted Mad Money viewers also to note the latest in a long line of banking blunders to come out of Europe. Not only did the Continent’s financial institutions buy toxic US mortgage paper, but they fueled their own residential and commercial mortgage bubbles as well, Cramer said.
Also worth mentioning is the European banks’ use of AIG’s derivatives division to mask their leverage. So US taxpayers, Cramer said, “are paying for the sins” of these companies.
So who are the culprits? British banks in total have about $5 billion in exposure to Dubai World, Cramer said, making them the largest group of creditors to be affected if DW defaults. Royal Bank of Scotland holds the most risk, which is why Cramer urged viewers to stay away from the stock.
But they should avoid Lloyds Banking Group , too, the Mad Money host cautioned. HSBC and Barclays are “also among the worst,” Cramer said, though not as bad as RBS and Lloyds because they were “a tad more savvy” in their non-Dubai business.
Cramer recommended staying away from all the European banks. But if investors feel compelled to own one, he steered viewers toward the preferred shares rather than the common stock. He specifically mentioned the preferreds of ING and Aegon, either the AED or the AEH , as “the best bets.”
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