Meredith Whitney, one the most influential pundits in the financial sector today, has left Oppenheimer and has started Meredith Whitney Advisory Group. Today she told CNBC’s Maria Bartiromo that her outlook for the money center and regional banks remains cautious.
She thinks that years and years of bad loans have to be worked out of the system as consumers lose access to credit. The troubled loan concentration at the large banks is one of the issues in the industry.
As far as putting faith in the administration and in the bank bailout, she thinks that there was nothing behind the expectations and no real meat in the plans as some of the obvious issues have not yet been addressed. She thinks we are putting good money after bad money. Helping bad mortgages does not put money in the system.
As far as recapitalizing the banks, Whitney said she does not want to see nationalization. Unfortunately, she offered no great ray of hope on the big banks today. Some banks did not get into the mess and want to lend. She thinks that the government should allow the regionals to do more lending.
Whitney also thinks you have to disaggregate the market loans power in the huge money center banks. The issues are just not being addressed in D.C.
As far as Citigroup, Inc. (NYSE: C), she said she would be a seller here. These large banks don’t make money. She doesn’t know if the government will keep giving capital to Citi.
She also argued that the consumer keeps getting more and more strapped. She thinks home prices could be 40% down this year rather than just 10% in 2007 and banks have to keep putting up capital against bad loans rather than making new business.
Specifically, Whitney said that the big banks will be lucky if they breakeven this year and she thinks that none of the banks will pay the existing dividends of today.
On J.P. Morgan Chase (NYSE: JPM), she thinks that the earnings pressure is going to be tremendous, but said that they are well capitalized. They are a survivor and in a standalone position.
She thinks that the government plan is overpromising and under-delivering. The banks can sell assets and they probably all want to pay back TARP money, but… the plan to repay TARP money in 3-years may be optimistic.
Whitney said she loves to do research but she now covers 10 companies rather than 25 because so many have gone under or been rolled up. She will rebuild her coverage list. She wants to provide recovery services to the banks that will make it, and it sounded like she wants to do investment banking deals and noted some of the low hanging fruit that is out there.
JON C. OGG
February 19, 2009