A 500% Return?

People’s United Financial could be the next Fleet Bank, Cramer said Friday. He sees the potential for this smaller regional outfit to emerge from the credit crisis a much bigger firm, and possibly more attractive takeover target.

Investors are scrambling for any bank stock they can get their hands on. Fifth Third , Huntington Bancshares , and Capital One , PNC Financial – you name it. And that’s fine, because the sector is snapping back after nearly two years in the doldrums. But this trend won’t last forever. Eventually, the momentum will die out and only the best of the best will continue their move higher. So investors want to make sure they are in just such a stock when then happens.

Enter People’s United . This company has a problem that’s quite unique these days – it has too much capital. That’s right. While most of banks in this peer group have a tangible capital to asset ratio of 6.1%, PBCT’s clocks in at 19.5%. And nonperforming assets, i.e., bad loans, as a percentage of all loans are at 1.75% versus just 0.25%, respectively. People’s United played it tight, and now the bank is in position to swallow up weaker competitors unable to survive the credit crisis.

So what’s the Fleet comparison all about? Well, that bank followed a similar path until Bank of America took it over. During the savings-and-loan crisis of the late 1980s, the FDIC granted Fleet most-favored-bank status because it was so conservative. After picking up Norstar Bank of New York, Fleet used its status to get to the front of the line to buy Massachusetts’ Bank of New England. The deal brought this once regional firm into the national spotlight, and led to an eventual sellout to Bank of America. Investors who got in at the Norstar deal and sold at the BofA takeover earned 500% returns.

Cramer’s expecting a repeat performance. He thinks People’s United will acquire more failing competitors to grow itself and the FDIC will aid in the process. In the meantime, investors can enjoy the 3.75% dividend, which will pay them to wait as PBCT takes over the New England market.

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