In the following video from CNBC.com, Maria Bartiromo interviews Meredith Whitney. Mrs. Whitney gives you your money's worth regarding the current banking crisis that we're in. Although Mrs. Whitney could be way off the mark in terms of the dire nature of the banking system, it wouldn't hurt to review and re-review what she says and look at her track record from the past. Mrs. Whitney is right more often than she is wrong.
Below is my summary of Mrs. Whitney's remarks (with my comments in parentheses):
- Paulson is not a stable person to be handling such an important job (Paulson may have made some big mistakes that we won't find out about until he is gone)
- Banks reducing credit card limits will have the impact of shutting down the economy well into 2009.
- Banking stocks and market will decline further
- Whitney's estimates for banking stocks are 30%-50% below current estimates
- "Kitchen sink" will be thrown in when reporting fourth quarter banking losses (some over eager buy-and-hold folks are already guessing that the banks are over-estimating their losses and therefore might come out ahead on the rebound. Such a perspective is too hopeful.)
- Re-regionalize the banking system is necessary; there is too much concentration at the top of the banking food chain (Wow!!! This is an astonishing comment since the mergers of many banks have further consolidated the banking system. Sounds like things will get much worse based on this rational.)
- Any semi-conscious bank manager should be hoarding cash. (Nice. brutal. honest.)
- Better clarity can found with off-balance sheet data rather than on the balance sheet where it can be mixed in with other banking data. ( This makes me think of the recent Citigroup move to bring about $1 billion back on the balance sheet. Are they trying to hide something?)
- FASB ruling reduces lenders ability to reprice unsecured credit card loans (This explains why banks would have plans to pull $2 trillion [at least] in outstanding credit lines.)
- Citigroup hasn't seen the worst; will need more capital (Scary; but no surprise.)
- Whitney had to offer solutions since being negative can only go so far (Whitney realizes that if what she says it too accurate over an extend period of time then people will start to accuse her of being the reason for the decline in the banking system. What a tough business to be honest in.)
- If the big banks fail then the insurance fund for the banking industry would clearly go bust (Better move your money to a "big" bank, if it fails then the small banks will not be able to secure your funds.)
- More capital is needed for the banking system especially the big banks (Government's blank check policy ought to fix that.)
- More government money going into banking system means that the crisis isn't over.
- Banks will need to shrink in order to grow (too bad the banks are getting bigger each day. Maybe if we start seeing division being spun off then we can expect some improvement.)
- Expanded lending by the banks will signal the end of the banking crisis which will precede the rise in the markets/economy.
- The only way to reliquify the banks is through investment in the stock (translation: a falling stock price is a bank that is about to go out of business.)
- Wells Fargo is the only large bank stock that is high-priced relative to the where it could go (...and Wells Fargo is one of the last quality large banks out there.)
In the end, if Mrs. Whitney is right about the pain to come then we will have to watch out for the reverberations in the insurance industry as happened to Japan in the 1990's. If you have insurance stocks for some reason then watch out. Touc.
