SOV's Offering Points to More Downside

Sovereign Bancorp (SOV - commentary - Cramer's Take) is offering one of the great indignities of the era: $1 billion in common equity at $7 after one of the most reckless runs in history. I am sure the value guys will lap this up, there's nothing they don't like. Who keeps giving them money?

Sovereign's got $13 book, lots of ATMs and some good branches, so I am sure those investors who have been punished endlessly owning this thing will line up for more. It is so pathetic, yet the equity will be priced in the hole and there will be great rejoicing when it is done, so the bank will be saved to lose some more money.

You know what's really amazing, though, about these stooges? No, it is not that Santander (STD - commentary - Cramer's Take), a pretty decent bank, had a huge stake and elected to say no to buying it.

What's really amazing is that Sovereign's in a bunch of really strong areas: Delaware, Pennsylvania, New Jersey, Connecticut, Massachusetts and New York. Those are all very strong states with very few -- relatively -- defaults. These guys are just horrible underwriters. This isn't like Washington Mutual (WM - commentary - Cramer's Take) with its mindless bad loan national rollout. Nor is it like the disastrous Ohio banks, the Nat Citys (NCC - commentary - Cramer's Take), and the Huntington Bancshares (HBAN - commentary - Cramer's Take), the Fifth Third Bancorps (FITB - commentary - Cramer's Take) with their wretched housing market.

Honestly, I can't figure out how SOV could be this bad. I just can't believe how many bad loans it has.

Anyway, Lehman (LEH - commentary - Cramer's Take) will place the stock, and SOV will go on, just like all of the others that will get their cash infusions, as the money for these banks is endless. You will hear that when things turn around, a bank like SOV will explode upward, and that we are now in the "buy the worst" mode. That's what you are supposed to do when the Paulsons and the Thains -- I lump these two rosy-scenario players together -- tell you the worst is over.

To me? I think that if you believe in the people who run SOV, you believe in the tooth fairy and Marty Sullivan over at AIG (AIG - commentary - Cramer's Take). Frankly, I am surprised, given how stupid SOV is, that they didn't go AIG one better with its raise-money-raise-dividend "strategy" and offer to buy back stock at the same time they are offering it.

This era is so different from 1990. SOV would be out of business then, along with Nat City, merged by the government into a stronger entity. Part of the reason this drag goes on endlessly is that no homebuilder has merged or gone under and only Bear (BSC - commentary - Cramer's Take) has crash-landed.

I disagree with Paulson and Thain: The worst isn't over, or you wouldn't have the travesty of AIG and the debacle that is SOV.

At the time of publication, Cramer had no positions in the stocks mentioned.

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