Cramer: The negative effect that Deutsche Bank will have on your money
With the price of oil up, Jim Cramer expected Thursday to be a great day for the market. Instead, worries over Deutsche Bank, the biggest bank in Germany, had ripple effects all over the world.
"You can always count on the banks to screw things up royally," the "Mad Money" host said.
Whenever the market worries about the possible solvency of any bank, Cramer only sees negative pin action for investors.
"So if a company like Deutsche Bank may be having real problems, and that's sure how it looks with the stock down 6.7 percent today, then several things are going to play out, and none of them are good," Cramer said.
The first scenario that Cramer said could happen is that Deutsche Bank's credit lines could get pulled, causing it to fall, and take down other banks with it. Many banks lend money to one another, and the presumption will be that money should not be lent to Deutsche Bank right now.
The collapses of banks in the recent financial crisis were not caused by depositors pulling out cash, but by credit getting cut off, Cramer said. That is what happened on Thursday.
This is the systematic risk that many fear. If this happened, Cramer expects a multi-day decline in markets around the world. Cramer thinks the German government will likely not allow this to happen.
"However, until we know that for sure and the systematic risk is totally taken off the table, you can expect the pressure on all stock markets worldwide to continue," Cramer said.
The second scenario is that Deutsche Bank will need to raise money quickly to meet demands. This is bad for shareholders, but would not prove catastrophic for the financial system. Cramer referred to this scenario as stock-specific risk. Until Deutsche Bank raises the money, it will pull European financials lower, and push U.S. stocks down initially.
This scenario would be resolved by shareholders coming in with new capital, or the government taking a stake in the company in exchange for cash it needs to get out of trouble. Cramer saw this as the more likely scenario, as he suspects the German government will be willing to step in and offer the capital it needs as a loan or return of equity.
The third scenario stood somewhere in between the first two, with Germany delaying stepping in and causing multiple days of pressure on the European banks. This could bring the U.S. market down until further clarity is reached. If this situation occurs, Cramer advised to let the market come down and then pick the stocks of high-quality companies that were dragged down.
"Stick with companies that just reported good numbers stick with some PepsiCo, as we did for our charitable trust … If it goes down tomorrow, I'd buy it," Cramer said.
Ultimately, the longer the situation with Deutsche Bank lasts, the more disconcerting it will be for the market until it gets resolved one way or another.
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