Jim Cramer Says Stay Away From the Bank Stocks
Jim Cramer is not a fan of the banks right now.
He wrote about the banks and oil earlier this week.
"Not that long ago my charitable trust, Action Alerts PLUS, had a pretty big position in Citigroup (C) . With the stock trading a couple of bucks below tangible book value -- what the company is worth literally if you shut it down -- and the company committed to buying back about 8% of its shares a year, it was hard to figure out how I could be hurt, and easy to see how I could make some pretty decent money," Cramer wrote. "Plus the key regulatory test, the Fed's CCAR, or Comprehensive Capital Analysis and Review, gave Citigroup the best report of all the majors. And you had a 3% yield, not bad when rates are this low."
Cramer had some other thoughts on Citi.
"First, when the pandemic turned ugly, the feds, out of an abundance of caution ruled no more buybacks. That's why we sold Citi as it was the principal reason to own the thing. That's not intellectual laziness; if you can find a company where management is committed to buying back stock and it is additive because it is below book value, theoretically you should just buy some stock and wait. But without a buyback the most important prop was gone," he continued. "Second, Citi had some of its own problems, like a lack of internal controls that we are only just discovering. The CEO, Michael Corbat, is retiring and bringing in Jane Fraser to replace him at what now looks like an inauspicious time with layoffs and a regulatory crackdown. You have to wonder whether that 4% yield is a safety net or is that about to go, too? So strange given how well the bank did on the CCAR exam just a few months ago. But that's one of the big issues with the banks: Who really knows what's going on in them?"
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