Private Deals for Regional Banks Would Be a Mistake

If the FDIC is poised to split banks to lure buyers, which is the headline from last week's papers, the buyers worth luring are not only the NewAlliances (NAL - commentary - Trade Now) and the First Niagaras (FNFG - commentary - Trade Now) but also Chinese banks and HSCB (HBC - commentary - Trade Now) and Barclays (BCS - commentary - Trade Now), both of which reported great quarters yesterday.

We keep focusing on these private-equity entrees that need to be intrigued to get in. I say to heck with them. That's nonsense. We need deep-pocketed existing banks that want to be bigger in the United States, not more handouts to private-equity firms that then bring them public in our faces and make a ton of money off us. We need ones that know how to run banks and know how to compete against the new colossuses like Bank of America (BAC - commentary - Trade Now), JPMorgan (JPM - commentary - Trade Now) and Wells Fargo (WFC - commentary - Trade Now).

Why not give private-equity firms the edge? Because the existing banks, HSBC and Barclays or the NewAlliances and First Niagaras, will give the taxpayers better deals. The FDIC can say to them, "If you want these banks, you have to take this many bad loans," something that the private-equity companies won't go for at all. The private-equity firms everyone wants in won't move until they are sure they will take the government to the cleaners, and then we will have to read endless stories about how they pantsed the FDIC.

With the Barclays and HSBC quarters in the bag, these companies are ready to take share, especially the latter with its strong existing base. China? Why not? Why shouldn't they move aggressively into this country? It's a great banking environment now that so many players are hobbled and can't make loans or are capital-constrained and frozen. You have to pay your depositors next to nothing and can lend at high rates.

Makes a ton of sense to me. Should make a ton of sense to the FDIC, but Sheila Bair seems to be pulled lately in so many directions, maybe she just doesn't see how important it is to have a plan to deal with the regional banks that are about to go bust because they are so heavily involved in failing local commercial real estate endeavors, the real weakness upcoming, the one that plagues the smaller guys that should be gobbled up, not the bigger firms with the steadier books of business.

Random musings: OK, let's see if Ron and Doug get this selloff right. Could be huge calls!

At the time of publication, Cramer was long Bank of America, JPMorgan and Wells Fargo.

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