Bank Losses Are Mind-Boggling

You know what? Bank earnings really were terrible. With the exception of Goldman Sachs (GS - commentary - Trade Now) (not really a bank) and JPMorgan Chase (JPM - commentary - Trade Now), the numbers were pretty hideous. In some ways, I don't think that these companies even have a handle on how bad things are. The foreclosures are all moving parts, anything bought, underwritten or being serviced from 2005 to 2007 is a total disaster. I think something like 40% of the loans and debt that was let that period on anything (cars, homes, credit cards, etc.) is going to default or is defaulting. The losses are mind-boggling and many bankers were either so irresponsible as to be sickening or were victimized by fraud.

Also, the numbers are not peak bad. There will be many others that will be worse. Far worse. It is a disaster.

Unmitigated.

And for the most part, the stocks are all buys.

Yes, the sad part about investing in banks, sad if you are a bear, is that they trade on reserves, not nonperformers. If you keep up the reserves and you raise capital as needed, you can beat this thing and get to normalized earnings power.

Take Bank of America (BAC - commentary - Trade Now). Man, was that an awful quarter, but the reserves were totally bountiful and reasonable and, I think, give you cushion. Citigroup (C - commentary - Trade Now) was abominable. So much of it was from Citi Holdings (the pathetic SIVs), however, that I don't even know how awful the core bank was, but I do know that the reserves are high. Bankers are either being responsible or the examiners are forcing them to be responsible. I don't know which is which.

The bank bears here on this site, which includes pretty much everyone as even the people who own them hate them, seem oblivious to the way banks trade at this point in the cycle. Those who do not have enough capital and are underserved get blown out of the business. Those with enough capital do fine and live to play again in a normalized world.

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At the time of publication, Cramer was long Goldman Sachs, JPMorgan Chase and Bank of America.

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