Meredith Whitney is and was one of the most influential banking analysts on Wall Street.

She was  negative on the banking and investment banking sector for roughly two years and has been credited as the one analyst who had it right as the sector crumbled.  But she recently left Oppenheimer to form her own firm and all of the banks and brokerages she covered were  vacant in coverage by Oppenheimer in name rather than in fact.  In a report from last night, Chris Kotowski has started the money center banks and investment banking firms.  While his notes are cautionary in nature, they are actually far less negative and even outright optimistic compared with Whitney.

Kotowski initiated coverage of Goldman Sachs Group Inc. (NYSE: GS), Morgan Stanley (NYSE: MS), Citigroup Inc. (NYSE: C), Bank of America Corp. (NYSE: BAC), and JPMorgan Chase & Co. (NYSE: JPM).

In the brokerage firm sector, ergo new bank holding companies, both Goldman Sachs and Morgan Stanly were started with “Outperform” ratings.  Kotowski initiated coverage of Citigroup, Bank of America, and JPMorgan Chase & Co. with “Perform” ratings.  Considering that the thesis is “Why Investment Banks Should Recover Before Commercial Banking” that only makes sense.

Whitney has been all over the media and doing an op-ed piece last week in the WSJ calling credit cards and credit lines the next big shoe to drop at banks.  She did a “ditto” appearance this morning on CNBC, yet we would point out again how last week she was much less negative than before and even gave a trading call for Goldman Sachs and the banks.  But Kotowski has maintained several bottoming out things in his notes.  This is the likely recovery of US financial institutions.

He thinks it is difficult to predict the timing of the unprecedented downturn, but he believes that the U.S. appears to be moving in the right direction.  Here he noted the recovery of interbank lending systemwide and also noted a normalization of the TED spread.

He calls a second step when there is a recovery of credit spreads on outstanding corporate bonds, mortgage-backed securities and other securitizations.  He thinks that trading desks and investment banks will see a much larger gain than money center banks.  The only issue is that he said it is too early to call any definitive trend here despite recent positive signs.

Where he thinks the banks will also lag is in the ability to rapidly invest in distressed securities and businesses.  After those phases have come about, then the report argues that money center and commercial banks will become the major beneficiaries.

The main reason that this is getting very little notice today is because of profit taking from the major runs we have recently seen.  We have also seen Goldman Sachs get cut at Keefe Bruyette & Woods and a downgrade on Morgan Stanley by B of A Merrill.

JON C. OGG

Thank you for reading! Have some feedback for us?
Contact the 24/7 Wall St. editorial team.