The coronavirus epidemic has placed financial institutions in a precarious situation which makes their stocks difficult to invest, according to CNBC Jim cramer said Wednesday.
While not at the forefront of disruptions in consumer spending, such as the cruise and airline industries, bank lending operations can face pressures.
“Each of these industries is going into debt. Each of these industries is, shall we say, now suspect, ‘the’Crazy moneythe host said. “If cruise lines, restaurants, retailers, airlines and oil companies are in trouble, well, so are their bankers. “
the ETF SPDR S&P Bank, or KBE, has cratered 35% since the start of the year. The index fell nearly 7% in Wednesday’s session.
The “ugly yield curve” and the risk of loans going bad means bank stocks could make “terrible investments” right now, Cramer said.
“I can’t figure out how to value them right now with all these struggling industries that are their customers,” he said. “From the appearance of things, no one else can either.”
Last week, the Federal Reserve issued an emergency half point interest rate cut to support the economy. Meanwhile, government bond yields have fallen to historic lows, affecting the profits institutions can make on some loans.
Cruise, oil, commercial, airline and industrial companies all face different challenges amid the global pandemic, but their reliance on banks is a common denominator.
Norwegian Cruise Lines Monday signed a $ 675 million loan with JPMorgan Chase on Monday. The company has $ 6 billion in long-term debt on its balance sheet, Cramer said.
“They owe the banks a lot of money,” he said, “and now, because of the flattened yield curve, the banks are giving risky loans at ridiculously low prices or interest rates.”
President Donald Trump met with America’s largest banks on Wednesday afternoon to discuss how the financial sector can help small businesses and markets weather the economic impact of the global health pandemic.
At the meeting, Citigroup CEO Michel Corbat explained that the current situation is not financial in nature, stressing that the financial system is “in great shape and we’re here to help.” The CEOs of Bank of America, Wells fargo and Goldman Sachs, among others, were also present.
Executives distinguished the current crisis from the 2008 financial crisis, which was pinned on the mortgage lending practices of banks. They said the banking sector is well capitalized.
Disclosure: Cramer’s charitable trust owns shares of JPMorgan Chase, Citigroup and Goldman Sachs.