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Meredith Whitney: Sell the banks
I noticed early this morning that some banks in the US finished in the red despite a very bullish day where the major market indices made new highs. When the Australian markets opened later in the morning, I noticed that the major Australian banks also registered big drops in price. At the time of writing, CBA and Westpac are both down more than 2%. I searched through the news to see what could be causing this and found a comment that it could be because of what Meredith Whitney (the banking analyst who correctly predicted Citigroup’s dividend cut in October 2007) said in her CNBC interview earlier today. I found the video interview and thought I would show it here for the benefit of all who share my bearish views. I mentioned that Meredith appears to be turning bearish in my Oct 28th post “Double Dip Recession Soon?” She certainly confirmed this in today’s interview with comments like “I haven’t been this bearish in a year”. As a banking analyst, she is particularly worried about the banks and some of her comments about banks were:
- the banking sector is “not adequately capitalized today”
- sees another leg down in the residential real estate market when mortgage rates/prices begin moving lower. To this point, Meredith said she feels that there is still a much bigger risk related to residential mortgage exposure, rather than commercial.
- within the banking sector the major difference between the market today and last year is that there is no mark-to-market now.
- “banks will go back to tangible book value”
- sell the banks
She has also called for a “double dip” recession in 2010, says that this market makes no sense to her and that there is no fundamentals behind the recent rally in stocks, thinks stocks are overvalued now and would sit in cash now until another leg down in valuation. My view is very similar to hers. I have already sold all my banking stocks and am remaining mainly in cash. Watch her complete interview here:
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