Cramer Hit On a Couple of Bait Shop Names

I briefly noted that on CNBC’s STOP TRADING segment that Cramer said Bank of America (BAC) may be telegraphing that they are going to buy someone.  He said the equivalent of, "Please Don’t Do It! Your stock finally looks good."  He noted that BAC could be looking at Comerica (CMA) and National City (NCC).  These are not "completely undoable" but the current regulations could be a real issue.

Bank of America can go make purchases all day long in the domestic financial services arena, as long as we are talking about non-depository institutions.  The company is up very close to its nationally imposed 10% CAP, where the federal reserve does not allow any single bank to hold more than 10% of banking deposits on a nationwide basis.  Could you imagine the run on the banking system that could occur if a bank that held more 10% of the total deposits was ever in financial trouble?  It is also important to know that they can grow organically to more than that 10% threshold, but that takes them out of the depository acquisition game.  The 10% cap applies to US deposits only, so they are free to do whatever they want internationally.

At one point last year, BAC was estimated to be around the 9.8% of total deposits in the US.  The 10% limit does not include deposits at credit unions and Bank of America has made the argument that those should be counted in the 10% limit when it comes to total deposits in the nation.  If any legislation happens or if they get any hard lobbying through, then that could change the argument.  They were instrumental in breaking down many of the old limiting interstate banking laws, so it isn’t fair to assume that laws and rules can’t be changed when Billion of dollars are at stake and when corporate America really takes its gloves off. The Wall Street Journal’s article discussing that Bank of America is trying to get the ceiling raised has sparked other reports and speculation that they are trying to do a larger deal, but I have discussed this on several occasions with a contact at the Fed (dating back to the J.P.Morgan (JPM) purchase of Bank One) and he said he thought Bank of America has been trying to get that 10% threshold raised for some time.

There are other areas such as custodial services, advisory services, investment banking, clearing, insurance, lending, merchant banking, and many more that they could go out and do deals in.  Neither bank, Comerica (CMA) nor National City (NCC), has had much price movement since Cramer noted this, so the street is probably guessing that these aren’t in-play. 

Both of these names are on a "WATCH LIST" for the BAIT SHOP because of their valuations being within the valuation guidelines that would make them potentially attractive to a buyer, but at the size of the companies you could just as easily see them out trying to buy smaller banks on their own.  For that reason, these two have never been added as full members to the BAIT SHOP.

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Jon C. Ogg
January 16, 2007