On Monday’s Mad Money, Jim Cramer advised his viewers to consider taking advantage of the $750 million secondary offer announced by BB&T (NYSE:BBT). BB&T used a recent secondary offering to raise capital for the purpose of paying back the government for TARP funding. In that offering, they raised $1.7 billion by pricing their issues at $20 per share. Investors who took advantage of that opportunity have made more than 30% in just a few months. Cramer was supportive of investing in BB&T’s (and others’) secondary offerings back a few months ago. Now, BB&T is tapping the well again because of their commitment to buy more than $22 billion worth of assets from the failed Colonial BancGroup.
Cramer likened the current banking failures to what happened during the Savings & Loan crisis because small but still financially solid banks were able to acquire distressed competitors very cheaply, and become bigger players because of it. When buying assets at firesale prices the risks associated with those assets are dropped dramatically. Through this deal, BB&T has very rapidly increased their presence in the markets of Florida and Alabama.
“We’re now seeing it with BB&T, which overnight has leaped frogged past Capital One and SunTrust to become the eighth largest lending institution in the country. You probably never even heard of BB&T, with this deal, they will now be one of the top dogs in two states where previously hadn’t even been among the leaders, Florida and Alabama.
BB&T, a North Carolina-based company has long coveted the deposit base of Florida, which is a much faster growing market than its own. Until this deal it was only the 16th largest bank in the Sunshine State. A non-entity. Now, after this acquisition of the Alabama bank Colonial, BB&T becomes the fifth largest bank in Florida, that’s critical now it’s able to spend money for advertising. Now it’s able to have a presence, able to take advantage of the rebound we are seeing in Orlando and in the west coast. And yes, in the movement of condos in south Florida.” CNBC’s Mad Money 8/17/2009
Cramer talked about enormous upside on this deal with Colonial, as their mortgage unit, which had come under DoJ investigation, posses no liability to BB&T. The offering went on sale Tuesday, and so far in morning trading the stock is up more than 2%. Clearly, BB&T is having no trouble raising money in the open market. With BB&T climbing to more than $27 per share, we have downgraded our rating to Fairly Valued, from Undervalued last week. However, we continue to believe that this is one of the most attractive bank stocks, and the deal to buy the assets of Colonial have brought BB&T from a regional to a national player. This will help the bank grow earnings into the future, which should support the higher price. We would be buyers of this stock anywhere below $30.