Mad Money

Cramer unpacks the bank stocks' weakness after strong earnings reports

Key Points
  • "Mad Money" host Jim Cramer explains the weakness in top bank stocks like J.P. Morgan and Bank of America after very good quarters.
  • The contradictory action is a symptom of strength, not disappointment, Cramer says.
Bank stocks' weakness after strong earnings reports

As earnings kick into full swing, CNBC's Jim Cramer needed to address the unexpected weakness in the big bank stocks.

"Bank of America reported a spectacular quarter this very morning with fantastic earnings growth. It came right on the heels of the amazing numbers we heard on Friday from J.P. Morgan and Citi[group]," the "Mad Money" host said on Monday.

"And what happened? No one seemed to care," Cramer continued. "I read over every bit of info, just like I did for J.P. Morgan and Citigroup, but I kept thinking, 'Wait a second, this is ridiculous. These are precisely the kind of quarters that I dreamed of.'"

Shares of Bank of America finished Monday's trading session up a mere 0.4 percent, while J.P. Morgan's stock closed down 0.1 percent and Citigroup's stock closed down 1.3 percent.

In his analysis, Cramer saw that the banks were making a lot of money on deposits (also referred to as net interest margin), one of the key signs of success for financial companies.

While lending activity could've been stronger, Cramer argued that it was good enough and showed that the banks were being conservative by not lending as much.

And with more rate hikes from the Federal Reserve on the horizon, the "Mad Money" host was stunned that shares of the banks, which benefit hugely from rising rates, still sank after their reports.

"The issue is simply that these stocks, all the bank stocks, ran going into the quarter. They've been fantastic performers," Cramer explained. " So when they reported, we just said, 'So what? Thanks for nothing. We needed every item to be better than expected after these moves.'"

Calling that line of thinking "stupid," Cramer reminded homegamers that the bank stocks are among the cheapest equities in the market. Their multiples are a fraction of the sky-high multiples of consumer goods stocks like Coca-Cola.

"The banks have better, much more consistent growth than these companies. In many cases, they have better balance sheets. They can buy back more stock," Cramer said, referencing Citigroup's major buyback program.

While he didn't want to disagree with the stocks' short-term pain, the "Mad Money" host wanted investors to stay vigilant if they owned anything in the financial sector.

"For the long term, we have four banks — Citigroup, Bank of America, J.P. Morgan and Wells Fargo — ... and the first three just slammed it out of the park. The fourth was hobbled by regulation," he said. "I think Morgan Stanley and Goldman Sachs ... could behave the same way: they've run too much going into their numbers and that could be the kiss of death."

WATCH: Cramer's market update after a weekend of worry

Cramer unpacks the bank stocks' weakness after strong earnings reports

Disclosure: Cramer's charitable trust owns shares of Citigroup, J.P. Morgan and Goldman Sachs.

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