Banks and the Net Onslaught - TheStreet

"The valuations are so compelling."

"The stocks are the cheapest I have ever seen them." "Even during 1990 with the real estate crash, we didn't have these kinds of valuations."

These are the comments about the banks that I am hearing from great strategists all over Wall Street. These analysts, who look at the market in sectors, can't understand how banks have fallen so dramatically out of favor in such a short time. They don't understand how these stocks could have fallen to three-year lows with so few earnings disappointments.

So what could the strategists be missing? They surely know that an inverted yield curve is bad news, but that's in their blood. They have figured that out. That's in the stocks.

I think they are missing the Net. This morning there is an unbelievably cogent article in

American Banker

about the success of

NetBank

(NTBK)

, which had, according to

AB

, a 580% jump in checking accounts. That in itself is no big deal. Lots of Net companies have unbelievable percentage gains off small bases.

What's eye-opening, however, is how it did it: "We have proven that the Internet banking model is a profitable business model," D.R. Grimes, CEO of NetBank, told

AB

. "It rewards the customer with convenience, the highest interest rates possible and the lowest fees."

Ouch!!!

That's the reason why the banks can't get out of their own way. They offer much less convenience, interest rates that aren't that high and the highest fees!

The only way they can compete with NetBank is to ruin their margins. That's what the strategists might be missing. They don't see that the banking business is about to be

Amazoned

(AMZN) - Get Report

! The banks are trading as if they are bricks-and-mortar fatalities of the next big Net initiative.

Can they avoid the onslaught? The stocks say no. The stocks are saying that they are dead ducks. What I want to do is find which banks have unassailable franchises that are augmented by other streams of revenue away from checking accounts and high fees. It looks like loans and fees won't be enough to get the banks out of a rut.

I can't abandon this group. But I can't take a big swing at them because their "cheapness" may be justified, and without some megamergers and some giant stock buybacks, these companies' stocks will remain under siege even as the bottom line still looks robust.

Random musings:

Pretty funny that the head of

WWF

(WWFE)

and the head of

Aetna

(AET)

feel the same way and say the same things about Wall Street. ... More secondaries today, watch them closely. ... Elsewhere today there is a terrific

article about

American Express'

(AXP) - Get Report

client distress. I know this is antithetical to my position in the stock -- I am long American Express -- but this is a must-read article. ...

Adam Lashinsky's

e-tailing piece successfully captured what many people are thinking on Wall Street about the current crop of offerings.

James J. Cramer is manager of a hedge fund and co-founder of TheStreet.com. At time of publication, his fund was long American Express. His fund often buys and sells securities that are the subject of his columns, both before and after the columns are published, and the positions that his fund takes may change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Cramer's writings provide insights into the dynamics of money management and are not a solicitation for transactions. While he cannot provide investment advice or recommendations, he invites you to comment on his column at

jjcletters@thestreet.com.