The Capitalized and the Dead

JPMorgan Chase (JPM - commentary - Trade Now) CEO Jamie Dimon's admonition about regional banks' coming problems with commercial real estate, highlighted on his excellent conference call this morning, is a reminder that you have to own the best capitalized regionals or you could run afoul his dictum.

More on JPMorgan

Signs of Credit Stabilization

These include First Niagara (FNFG - commentary - Trade Now), People's United Financial (PBCT - commentary - Trade Now), NewAlliance (NAL - commentary - Trade Now) and Glacier (GBCI - commentary - Trade Now). Increasingly I believe the FDIC will call on these banks to acquire others with bad commercial real estate precisely because they are brimming with capital. The objections to entities buying collapsing banks has to do with weak capitalization structure, particularly when it comes to private equity.

Where is commercial real estate clustered? Often it is in small savings and loans that don't matter. Sometimes it is in banks like Corus (CORS - commentary - Trade Now), which is a huge condo developer in Florida.

Corus is a helpful analogy here. Even though it is pathetic and is offering the second-highest-yielding CD because it needs to fund its awful operations with hot money. (By the way, if you are desperate for yield, Sheila Bair's allowing Corus to pay these high rates so why not take advantage of them?). There are bidders, shrewd bidders, who are willing to buy the assets of the bank. According to The Wall Street Journal, Starwood Hotels & Resorts (HOT - commentary - Trade Now) is interested and that's a real savvy buyer.

The trick is to recognize the walking dead from the robust because the robust will win, especially now that we see the government is willing to let a TARP taker, CIT (CIT - commentary - Trade Now), go belly-up.

That could mean that Zions (ZION - commentary - Trade Now), Regions Financial (RF - commentary - Trade Now) or even Suntrust (STI - commentary - Trade Now) could be in the crosshairs of commercial real estate.

That's why you stick with the small regionals that have paid back TARP or had no need for it.

That way you can sleep at night.

At the time of publication, Cramer was long JPMorgan.

Please note that due to factors including low market capitalization and/or insufficient public float, we consider Corus to be a small-cap stock. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.

ALL JIM CRAMER BLOG ENTRIES | POST A COMMENT | READ COMMENTS  

---

Jim Cramer is co-founder and chairman of TheStreet.com. He contributes daily market commentary for TheStreet.com's sites and serves as an adviser to the company's CEO. Outside contributing columnists for TheStreet.com and RealMoney.com, including Cramer, may, from time to time, write about stocks in which they have a position. In such cases, appropriate disclosure is made. To see his personal portfolio and find out what trades Cramer will make before he makes them, sign up for Action Alerts PLUS. Watch Cramer on "Mad Money" weeknights on CNBC. To order Cramer's newest book -- "Jim Cramer's Stay Mad for Life: Get Rich, Stay Rich (Make Your Kids Even Richer)," click here. Click here to order "Mad Money: Watch TV, Get Rich," click here to order "Real Money: Sane Investing in an Insane World," click here to get "You Got Screwed!" and click here for Cramer's autobiography, "Confessions of a Street Addict." While he cannot provide personalized investment advice or recommendations, he appreciates your feedback and invites you to send comments by clicking here.

TheStreet.com has a revenue-sharing relationship with Amazon.com under which it receives a portion of the revenue from Amazon.com purchases by customers directed there from TheStreet.com.