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Meredith Whitney’s Outlook on Banking

Posted by Larry Doyle on November 20, 2009 7:22 AM |

Meredith Whitney

Meredith Whitney

Having provided an overview from three top rated banking analysts in my commentary, “2010 Outlook for Banking,” I welcome the opportunity to offer the thoughts from the most highly rated banking analyst on Wall Street, Meredith Whitney.

Ms. Whitney has become increasingly bearish on the market. Yesterday, Ms. Whitney added further fuel to the fire and provided further specifics to her aggressive call.  Bloomberg offers, Meredith Whitney Says Bank Stocks are ‘Grossly’ Overvalued,

Meredith Whitney, the analyst who has no “buy” recommendations on U.S. banks, said valuations on lender stocks are too high and what “scares” her most is the government stepping away from buying mortgage-backed securities.

“The banks are still grossly overvalued,” Whitney said today in an interview on Bloomberg Radio. “People are expecting something great to happen in 2010 and I think they are going to be severely disappointed.”

The Federal Reserve has begun slowing purchases in the $5 trillion market for so-called agency mortgage-backed securities after announcing in September that it would extend the timeline for its $1.25 trillion program to March 31 from year-end. Whitney said that banks are only originating home loans that they can sell to Fannie Mae and Freddie Mac.

“If Fannie and Freddie can’t sell to an end buyer, i.e. the U.S. government steps back, the mortgage market at minimum contracts, rates go higher, and banks are poised with more writedowns,” said Whitney, founder of Meredith Whitney Advisory Group. “This is probably the issue that scares me most across the board.”

Whitney said she doesn’t expect consumer and small business spending to rebound and she forecast $2.7 trillion in credit lines being cut. She said she expects this year’s holiday season to be at best “flat” versus last year.

In the midst of this projection by Ms. Whitney, combined with the analysis provided in the aforementioned commentary, it seems plainly evident that regional lenders will be stressed to the point of failure while the banks currently deemed ‘too big to fail’ will likely gain market share and become even that much bigger.

What will Washington do? We are now hearing increased rumblings that the Federal Reserve will keep its Fed Funds rate at 0-.25% at least until 2011 and perhaps 2012. That easy money may continue to prop up the markets while the economy as a whole goes down the drain.

LD

  • fiscalliberal

    Merideth seems to stick to bank stocks and I am not certain that that directly translates to the other stocks. I guess I can agree with her on the bank stocks as some time the government has to step back and stop the subsidies. Some where these banks need to stand on their own merits.

    The bankers have been use to the Greenspan cheap money bubble and the lack of Fed/SEC regulation, the bank management might not know how to manage risk. True the Fed and SEC are steping up in regulation, but that is not enough to overcome the incompetence at the heads of these institutions regarding risk management

  • Mark G.

    “That easy money may continue to prop up the markets while the economy as a whole goes down the drain”
    …………..

    Prop up the markets until we see oil at $1-300 and food prices skyrocketing. Then Maestro jr. will be forced to raise rates causing further contraction as we end up with stagnant growth, expensive credit and a stronger dollar.






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