Wednesday, March 26, 2008

I'm on Meredith Whitney's Side

Meredith Whitney is an Oppenheimer & Co banking analyst who has not drunk the Kool Aid. [Feb 22: Kool Aid Drinkers in Financials Unhappy with Today's Reality Checks] She has been nailing these financials each and every time the jocks on Wall Street jump onto the "bottom is in" (for the 18th time) bandwagon. If not for the unprecedented Federal Reserve actions, she would already be even that much more correct than she has been. Only the full backing of the tax payer is helping to prop up the system in my opinion. But she is out today with more downgrades, and slashes to earnings and warns she is not done for 2008. Don't mess with Meredith. (and yes there are those out there calling for the bottom is in - but it all depends on how truly socialist our Federal Reserve and government plans to be - something we cannot model - so until then - we have to go with our semi capitalist assumptions)
  • Oppenheimer & Co. on Wednesday forecast Citigroup Inc. (C) could write down another $13.1 billion in the first quarter and post a loss more than twice as deep as Wall Street's outlook.
  • Oppenheimer also cut its first-quarter estimates for the other large-cap banks by an average of 84%, and put itself in the camp of analysts who believe the credit crisis plaguing financial companies is far from over.
  • "We are confident this will not be our last reduction in 2008," Oppenheimer analyst Meredith Whitney wrote in a research note. "Rather as key mark-to-market indices trend lower, the housing market worsens, and the U.S. consumer comes under increasing pressure, we anticipate further downside to both estimates and stock prices."
  • In addition to $13.1 billion in write-downs for Citigroup, Whitney predicts $ 4.3 billion in write-downs for Bank of America Corp. (BAC), $2.8 billion for JPMorgan and $1.5 billion for Wachovia Corp. (WB).
  • Last week, Punk Ziegel analyst Richard Bove said the Federal Reserve's action to provide a liquidity backstop for the banks marked an end to the crisis and a "once in a generation opportunity to buy bank stocks."
  • Whitney is perhaps the most prominent voice on the other side of the divide, having gained extra weight from her contrarian - and correct - call five months ago that Citigroup would have to cut its dividend.
  • Miller on Monday cut his estimates for 21 banks, saying that despite the recent rally in bank stocks, the problems in the credit markets have intensified. He believes that the Fed's actions "should help at the margin, but credit losses will have to run through the system, putting tremendous pressure on capital levels and earnings."
How we exit the globe's worst credit contagion without any serious bankruptcies is simply a Kool Aid fantasy. But one we keep getting fed. (or is it Fed?) So while we are assured to our face, the FDIC is quietly hiring staff for the coming bankruptcies. I mean, even the Federal Reserve (i.e. you) can't bail out all of them. And one of them, Citigroup (C) is so big, the Federal Reserve and Treasury won't be able to find a buyer for them - so how they handle that coming drama will be so very interesting. Somehow, I believe all our pocketbooks will be part of the "solution".
  • The Federal Deposit Insurance Corp plans to hire as many as 138 new workers to address the potential for rising bank failures, the Wall Street Journal said in its March 26 edition.
  • An agency spokesman said the FDIC plans to boost the number of workers in its Division of Resolutions & Receiverships to as many as 380 from the current 223, the newspaper said. (over a 50% increase folks...)
  • Only five U.S. banks have failed since 2004, including two this year. Analysts have predicted the failure rate will grow as losses from soured mortgages and other loans mount, and as regulators crack down on lenders that take too much risk.
  • More than 2,000 banks nationwide failed in the decade ending in 1992, encompassing the heart of the savings-and-loan crisis. (but this is a new era of socialized losses.... taxpayer funded and Uncle Ben/Hank/George approved!)
Position: Frightened by Citigroup's prospects

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