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[Ulisses Pereira]

"Don't Believe Negative Hype on Banks"

By Jim Cramer
RealMoney.com Columnist
1/18/2007 10:16 AM EST

"With all of these negative articles about bad loans and the subprime business going bad and mortgages that are in trouble, here's a question you need to ask yourself: Why the heck are the banks going up? Why is the banks index, the BKX, holding in?

And the answer is: Banks do know how to lend. At this point in the cycle, the nonperformers are actually holding up much better than expected. When you read about JPMorgan (JPM - commentary - Cramer's Take - Rating) or Wells Fargo (WFC - commentary - Cramer's Take - Rating) and you look at their loan provisions, they are very low for this moment, given the housing decline. When you look at the aggressive lenders like Commerce Bank (CBH - commentary - Cramer's Take - Rating), they seem absurdly low.

Part of that is because many of these loans are to businesses that are expanding or to commercial construction, which is on fire.

More important, though, is that the banking business has become better than it used to be and therefore deserves a higher multiple. The only bank that really complained about losses was Washington Mutual (WM - commentary - Cramer's Take - Rating), and frankly they're just bad bankers, in my opinion.

Don't believe the negative stories. Go back to the other downturns in banking: 1988-89, 1991, 1994 and 1998. You'll see dramatically higher losses, out-of-control losses in some cases.

That isn't happening here, despite the worse housing crisis in years.

That's why the stocks aren't going down, and I suspect will start going up after earnings season is over. "

(in www.realmoney.com)