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HomeMeredith Whitney’s Outlook on Banking
Posted by Larry Doyle on November 20th, 2009 7:22 AM |
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.” (more…)
How Will The Fed Exit ‘Hell’?
Posted by Larry Doyle on November 4th, 2009 3:06 PM |
None other than Meredith Whitney, the top rated bank analyst on Wall Street, characterized the Federal Reserve’s quantitative easing program to purchase mortgage-backed securities (MBS) as a ‘deal with the devil.’ Can the Federal Reserve sneak out of hell without disturbing the other residents? Can the Federal Reserve regain its stature of credibility and independence in the face of such massive government intervention and Wall Street influence? The challenge embedded in communicating how the Fed will ‘exit hell’ will be the single greatest determinant of economic and market direction over the next six months.
Did we catch a peek into those depths of hell today given the release of the most recent Federal Reserve policy statement?
What did we learn? (more…)
Bank Stress Tests? Take Home Exams and Partially Self-Graded
Posted by Larry Doyle on April 24th, 2009 3:10 PM |
The Treasury just released the methodology used in assessing the vitality of the 19 largest banks via the Bank Stress Tests. The market took the release of this methodology as a big yawn. Treasury offered that the capital at some banks has been “substantially reduced.” Please tell us something we don’t know.
The worst case scenario used by Treasury still falls into the camp of what most analysts view as the expected scenario.
In reading deeper into some of the reviews of the methodology, I am struck by the leeway provided to the banks in measuring the credit quality of loans on the banks’ books and the likelihood of deterioration on those loans. I view that as the wiggle room described by Meredith Whitney earlier this week.
As Bloomberg reports, Fed Says Capital at Some Major Banks Is Substantially Reduced:
“Firms were allowed to diverge from the indicative loss rates where they could provide evidence that their estimated loss rates were appropriate,” the study said.
Regulators used the market shocks of the second half of 2008, when Lehman Brothers Holdings Inc. declared bankruptcy, as the model for testing banks with trading portfolios of $100 billion or more.
As they pored over banks’ loan and securities portfolios and off-balance-sheet liabilities, examiners increasingly focused on the quality of credits. They were concerned about wide variations in underwriting standards, a regulatory official said this week.
Supervisors concluded that banks’ lending practices need to be given as much weight as macroeconomic scenarios in determining the health of each bank, the official said.
The goal of the reviews is to keep the major financial institutions lending over the next two years, and to determine how much capital they may need if the economic slump worsens.
Supervisors will weigh how much capital each company holds, its ability to retain earnings over the next few years, future access to private capital and the extent any asset writedowns.
The Bank Stress Tests are not only largely a take home exam, but now we discover they are partially self-graded.
Call me suspicious.
In speaking with friends on Wall Street, I have heard from a number of individuals that there is still a large short base in a number of the financials. The short base is providing a strong cushion to that sector specifically and the market in general.
LD
Will Bank Stress Tests Be “Put on a Curve?”
Posted by Larry Doyle on April 22nd, 2009 9:10 AM |
Will the soon to be released Bank Stress Tests provide real clarity on the health of our banking industry or will the tests be “curved?” Meredith Whitney, highly regarded bank analyst, has indicated that the tests will provide plenty of wiggle room for the banks. Just yesterday Secretary Geithner “goosed” the market by indicating the majority of banks have sufficient capital. To what degree can we trust what Turbo-Tim is telling us?
Mohamed El-Erian, CEO of PIMCO (Pacific Investment Management Company) provides a blueprint for an honest review of the Stress Tests. Mr. El-Erian highlights the following in a Financial Times article:
First, transparency is key. Whether the government likes it or not, hundreds of analysts around the world will reverse engineer the stress tests. The government would be well advised to assist the process through clarity. Obfuscation would result in damaging market noise and further derail the real economy. At the minimum, policymakers need to provide credible details on the methodology, the underlying assumptions and scenario analyses.
To this point, neither the banks nor the government have provided real transparency. What are we to expect when Congress pressures the FASB to relax mark-to-market accounting thus forever clouding real transparency?
Second, the results of the stress tests must be part of a comprehensive, forward-looking package to resolve problems at banks. Out-performing banks should be provided with exit mechanisms from the exceptional government support that they have been receiving and, presumably, no longer need. At the other end, there must be clarity as to how capital-deficient banks that no longer have access to private capital will be handled. (more…)
Is The Economy Turning The Corner?
Posted by Larry Doyle on April 21st, 2009 7:05 AM |
Markets correct by price (both up and down) and time (extended). Despite the 3+% price declines in equity markets yesterday, the markets are up approximately 20% since the market lows seen on March 6th. Some analysts believe this upward move signals an improvement in the economy largely due to the fiscal and monetary stimulus provided by Uncle Sam. I am not in that camp.
A few emerging economies, specifically China, have improved. Can the rest of the world, including the U.S., expect those economies to be the engine for a global turnaround at this juncture? I do not think so. I still see the following issues on our domestic horizon:
1. continued deterioration in loan performance on bank books
2. a banking system woefully capital deficient
3. an automotive industry which must downsize
4. municipalities which are faced with the predicamant of capital shortfalls and underfunded pensions
5. commercial real estate just starting to experience real defaults
6. a housing market with increased foreclosures pressuring prices
7. an unemployment rate clearly headed toward double digits
Earnings reports for the first quarter have been mixed. I view the recently reported bank earnings as largely “managed” via accounting gimmicks. Meredith Whitney believes the earnings for major money center banks will turn negative in the 2nd quarter. The regional banks, without the benefit of large capital market activities but facing credit writedowns, report earnings today. Key Corp just reported a loss of $1.09 eps (earnings per share) versus an estimate of -.21. I suspect we will see losses from other regional banks of a similar magnitude. (more…)
Citigroup’s Earnings: More Fuzzy Math
Posted by Larry Doyle on April 18th, 2009 9:21 AM |
In reviewing bank earnings this week, I truly get the sense with a number of institutions that they determine just how much they want or need to outperform analyst expectations and then they figure out how to “manage” the books in order to get there.
This “managed earnings” process can be played for an extended period, but ultimately the earnings – or more importantly “hidden losses” – come out in the wash.
Citigroup played this game yesterday. The NY Times reports, After Year of Losses, Citigroup Finds a Profit. I give the Times credit; they did not report that Citigroup generated a profit, but that they found it. Where did they find it? The Times offers:
Like several other banks that reported surprisingly strong results this week, Citigroup used some creative accounting, all of it legal, to bolster its bottom line at a pivotal moment.
Citi utilized creative accounting supported by the pressure applied by Congress on the FASB. Where is the pressure applied by the SEC and FINRA on behalf of investors? Isn’t it only fair that somebody speaks up for investors? Is the SEC and FINRA in bed with Congress to “play the game?” Let’s move on.
The top rated banking analyst on the street chimes in: (more…)
Back to the Future
Posted by Larry Doyle on March 24th, 2009 4:02 PM |
Are we returning to the days of white picket fences, hot dogs, Mom, baseball, and apple pie? Perhaps some people never got away from those endeavors so there is no need to return. However, given forces within the banking industry far outside our control, perhaps we will be returning to the days of community and regional banking.
Our nation experienced the development of a handful of mega-banks given the economies of scale with that model. The leverage created by combining systems, cross-selling products, and outsourcing labor allowed these institutions to redeploy capital into higher risk securities and situations often housed in off-balance sheet vehicles. Pardon my cynicism, but that model does not put a lot of emphasis on customer or employee loyalty, despite what management at many of those institutions may say. That model promotes the concept of volume and efficiency over individual and relationship. Regrettably, that model never fully developed the risk management and risk managers to control those behemoths. (more…)
What Has Meredith Whitney Got to Say?
Posted by Larry Doyle on December 11th, 2008 6:20 AM |
You have heard me sing the praises of those whom I consider to be some of the wisest minds in the financial markets. Included in this group are Nouriel Roubini, Laszlo Birinyi, Sheila Bair, and Meredith Whitney. It is not often that we have the opportunity to hear timely, insightful, and extensive analysis from these individuals. This morning we have one of those opportunities as Meredith Whitney, the TOP bank and financial services analyst on Wall St., is interviewed.
This attached video clip of her interview runs 12 minutes but it is extremely insightful on the current state and future outlook for the following:
1. Consumer Credit….it is going to get MUCH tighter, which is the very reason why we are STRONGLY encouraging people to pay down debt.
2. Outlook for large money center banks….”on life support for the next 18-36 months”
3. AIG….needs more money as they have incurred ANOTHER 10bln loss. (more…)
Tags: Meredith Whitney, Meredith Whitney commentary, Meredith Whitney speaks, Meredith Whitney speaks on banks
Posted in American Consumers, Current Affairs, Economic Stimulus, Economy, Meredith Whitney | 1 Comment »