Meredith Whitney's Good News... Only 300 Bank Failures (BAC, C)

Notorious bank analyst Meredith Whitney of Meredith Whitney Advisory Group is out with some new harsh predictions calling for the demise of more banks.  It is actually not all really bad news, but she is also arguing that the earnings power the stocks are starting to reflect is just not there yet.  She even specifically noted Bank of America Corp. (NYSE: BAC) and Citigroup, Inc. (NYSE: C).

Whitney gave a brief interview to Bloomberg in Jackson Hole and is essentially calling for more bank failures and more liquidity to come out of the system.  So far there have been 78 bank closures and Whitney’s firm now projects that there are going to be  more than 300 bank closures and also 5% to 8% of bank liquidity taken out of the system before this is all done.

The good news is that there are fewer banks this time than there were in the last cycle, so Whitney noted fewer closures.  She cited that there were thousands of closures in the last cycle.

But in the land of revolving debt, or credit cards, Whitney noted that more than $1 trillion of liquidity is being taken out of that market now and ultimately that there will be over $2.5 trillion taken out of that market when it is all finished.  She thinks that many of the banks will be okay, but does not expect the real driver of consumer spending to come back soon.

As far as Citigroup, Whitney thinks the company will start to sell assets and raise capital through asset dispositions to be able to buy the government’s stake back.  As for Bank of America, Whitney noted that B of A has already monetized a lot of assets.

Bank of America stock is up 1.85% at $17.46 today and Citigroup stock is up over 5% at $4.72 on the day.

JON C. OGG
August 21, 2009