For months we have waited for a bank deal. They make so much sense and are so important to the financial investment thesis that I was beginning to wonder if this Y2K problem really was insurmountable and we would have no deals until well into 2000.
This deal between
changes everything. If I am right -- and I am long BankBoston -- the market will view this deal as the beginning of another wave of massive consolidation, this one leaving us with just six or seven national banks.
Why must this happen? Whenever you think of banks, you should be thinking technology. I know there was a time when you should have been thinking relationships -- and there still are some situations where people have relationships with banks -- but, for the most part, those days are long gone. (Don't forget I am from Philadelphia, where a dozen banks were based when I was growing up with powerful people at the helm. Now no major bank is headquartered there, and nobody knows any of the people who run these big new banks that have come in.) Banks are these huge databases that can be mined for profit if you have the right technology.
But that amount of technology costs billions, and you can't skip a cycle without getting killed by your customers, who will just move to a better-run bank.
Only outfits as big as these combined entities can take advantage of the cost savings of the expensive tech, so these banks have to merge whether they like it or not. As the bank stocks are all punished with lower multiples than most other groups, these deals make a ton of sense.
Believe me, the management teams at Fleet and BankBoston are proud and fierce battlers. To put their competitive enmity aside to make this deal happen shows that these banks know they either merge or die.
That's why this sector remains one of my favorites, and, after they all trade up on this news and then down again when no deals occur tomorrow, I will buy more bank stocks.
Lotta people are warming up to Japan. Others, like this
Greed & Fear guy, are talking head-fake. I think that guy will be dead wrong. If I am right, he should change his name to Wood! More fitting! ... I took some readers' advice and now routinely delete angry letters from the likes of Dana, Alang and Chesstar. I find myself enjoying my email again. It must be killing those guys, though, to not be able to get my goat anymore.
James J. Cramer is manager of a hedge fund and co-founder of TheStreet.com. At the time of publication, his fund was long BankBoston, though positions 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 by sending a letter to TheStreet.com.