Sunday, April 26, 2009

Meredith Whitney on Bear Attack!

Watched Meredith Whitney on Bear attack on BNN. Here's what she had to say:

  • Bank stocks : Things on a tangible book value basis could improve.The basis on which these stocks are valued could improve, for the quarter anyways. TCE will look better because of these writeups.

  • Tier 1 capital ratio could get worse..

  • BAC has some good businesses so should be first to enter the yard sale of assets. Citi has so many disparate businesses and small share that it’s hard to see how Citi sales work out on a long term.

  • The greatest export the US has had over the last 30 years has been the financial services. That obviously is not going to happen going forward. Will go to something else than exporting leverage. We can do this from a core basis. Definitely not a death knell. But there’s some significant restructuring which could be painful in the intermediate term.

  • Municipal markets and the local economies are dependant on mortgages. That’s gotta change. Painful uprooting of the entire US economy. Can get done. It’s just going to take a long time.

  • I’ve never made the claim that any institution was insolvent except Bear Stearns which was clearly insolvent.

  • Specific to the banks: sitting on trillions on dollars of overvalued assets. Loans written on bad math. Mortgages written with an assumption of 6% unemployment. Expecting 30% peak to trough real estate price decline.

  • Banks are not going to earn that much over the next couple of years, whether they are insolvent or not.

  • Homeownership rate currently 67%, trending down. It’s not justifiable to keep people as homeowners when they are not owning anything (in equity). So we are going to have a supply jam that’s going to drive foreclosures. We’ll see a sharp leg down.

  • Credit cards: not really the defaults, but the contraction in liquidity is the concern. US consumers have grown dependent on credit as a cash flow management vehicle. 90% of Americans revolve credit lines at least once a year. 45% revolve every month.

  • $2.7 trillion credit lines cut. 55% of all credit card lines in the US will be cut from peak. Psychologically damning effect on willingness or ability to go out and spend.

  • The earlier banks sell their assets, the more they’ll get.

  • Will XLF set new lows? It’ll come pretty close.

  • By the time of summer I expect that to take place. There’s going to be great things to buy but it’s just not there yet. Banks will sell great things: processing vehicles etc. Distressed assets that have huge operational leverage. Their asset structures are built on declining asset values, High premiums and bad maths.

  • I’m surprised that there’s a willingness to give banks so much credit. I hope investors don’t enter banks. They’ve been fooled over and over again.

On the whole it was a good interview. I haven't mentioned the guy who was with her during this as he was wayy to bearish, predicting Dow 1000..

Go watch him if you care to know why!