Bank stocks have become 'awful investments' because of the coronavirus impact, Jim Cramer says

The coronavirus outbreak has placed financial institutions into a precarious predicament that makes their stocks tough to invest in, CNBC’s Jim Cramer said Wednesday.

While they do not have a front-row seat to consumer spending disruption, such as the cruise and airline industries, the lending operations of banks may face pressure.

“Every one of these industries takes down debt. Every one of these industries is, shall we say, suspect now,” the “Mad Money” host said. “If cruise lines and restaurants and retailers and airlines and oils are in trouble, well, so are their bankers.”

The SPDR S&P Bank ETF, or KBE, has cratered 35% since the start of the year. The index fell almost 7% in Wednesday’s session.

Shares of JPMorgan Chase, Bank of America and Citigroup, among the biggest American banks, are all down more than 30% from their January highs.

The “ugly yield curve” and the risk of loans going bad means bank stocks could make “awful investments” currently, Cramer said.

“I cannot figure out how to value them right now with all of these industries struggling that are their clients,” he said. “From the looks of things no one else can either.”

Last week, the Federal Reserve issued an emergency half-point cut to the interest rate to support the economy. Meanwhile, yields on government bonds have fallen to historic lows, affecting the profit that institutions can make on some loans.

Cruise, oil, retail, airline and industrial businesses all face different challenges amid the global pandemic, but their dependency on banks is a common denominator.

Norwegian Cruise Lines on Monday inked a $675 million loan with JPMorgan Chase on Monday. The company has $6 billion worth of long-term debt on its balance sheet, Cramer pointed out.

“They owe the banks a lot of money,” he said, “and now, because of the flattened yield curve, the banks are making risky loans at what could be ridiculously low prices or interest rates.”

President Donald Trump met with the largest U.S. banks Wednesday afternoon to discuss how the financial sector can help small businesses and markets weather the economic impact of the global health pandemic.

In the meeting, Citigroup CEO Michel Corbat explained that the current situation is not financial in nature, stressing that the financial system is “in strong shape and we are here to help.” The chief executives of Bank of America, Wells Fargo and Goldman Sachs, among others, were also present.

The executives distinguished the current crisis from the financial crisis of 2008, which was pinned on the mortgage lending practices of banks. They said the banking industry is well capitalized.

Disclosure: Cramer’s charitable trust owns shares of JPMorgan Chase, Citigroup and Goldman Sachs.

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