Influential bank analyst Meredith Whitney just gave a Maria Bartoromo an interview on CNBC after her op-ed piece in the WSJ called credit cards and credit lines the next wave of problems for financial institutions. Whitney has been very negative on banks, and she appears to have her Darth Vader mask handy to review their financial results. But she is lightening up on her statements, saying the companies might make a good trade but not an investment.
Whitney sees at least $2 trillion cut in credit by 2010. Credit is being used by consumers and small businesses as a cash flow management tool. As banks are cutting credit lines, their portfolios shrink, and that in turn leads to more losses and writedowns. She said that credit portfolios won’t be profitable this year. Those credit card loans were mispriced originally because the credit situation and the employment situation was better than it is now.
Where this gets interesting is where she discusses today’s rally.
She said she’d buy Goldman Sachs Group Inc. (NYSE: GS) down in the $70.00’s but not at $100.00. She said Goldman Sachs and Morgan Stanley (NYSE: MS) will take market share, but that it is from a shrinking pie. She said she is not making any long term bets with any of these major financials, but she thinks that there is an opportunity for a trade here. But that was only until the quarterly numbers come out in April.
On the memo where Citigroup, Inc. (NYSE: C) was claiming profitability, Whitney said that Citi’s capital position may be “stronger” but not strong. That is also pre-write down with both on balance sheet exposure and off balance sheet exposure and there are trillions of loans that were mispriced across the entire financial system. She doesn’t see Citi as being profitable and she is not optimistic even at these levels. As she noted, sure the raly is huge but the $1.40 stock price isn’t. She also thinks that Citi will be forced to sell things like Banamex and she wanted to know if US taxpayer money is helping to support foreign loans.
On suspending mark to market, she thinks the damage has already been done and that it is a non-factor right now because banks probably want to hold these assets in case these rise in value and they get to mark up the value. She did not really seem to care as it was a “now or later” issue.
As far as the policy response, Whitney said that this shows you that the government can’t bail these banks out themselves. They are making terms richer and richer for private capital to make it attractive.
The banks’ first quarter may be a little bit of a rally because of the mortgage foreclosures being halted under a moratorium, but this year they aren’t going to be making much money. The next iteration after the dividend cut will be a raise of capital via asset sales like non-core assets. In this she noted Bank of America (NYSE: BAC) selling off non-core units. Whitney then went on to say that investors will do best buying banks that sell assets first because they will be getting the best prices.
Anyhow, this is still a cautious Meredith Whitney. But what is obvious is that this is a much “less gloom and less doom” Meredith Whitney. Even if it is just for a trade.
Here is the full interview link on the CNBC site.
JON C. OGG
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