Wednesday, July 23, 2008

This Analyst Has Bank Industry's Number

The CEO of a major investment house sent out an email blast to customers, including me, today. Nice of him to drop us a line. In his message, the CEO acknowledges that I--along with millions of fellow investors--may be a tad worried about our volatile economy and stock market. Yes it is troubling, he conceded, but don't worry.
Gee, suddenly I feel so much better.
But you know what would make me feel ecstatic? If one of the best and most candid financial analyst on the scene today--Oppenheimer & Co.'s Meredith Whitney--was telling us that we've turned the corner. But, Whitney's too honest and intelligent to say anything like that right now.
If you get a moment, click on this link from Bloomberg TV and listen to what Whitney is saying. In this interview, and in her recent report on the banking industry, Whitney shoots down any overly-optimistic talk about a bottoming out of the nation's housing and banking troubles.
Peppered throughout her Bloomberg interview are some truths we all need to hear.
On the bank industry: Revenues are going down, expenses are going up and that erodes capital.As we've noted here before, the whole banking crisis is about improving capital levels and until that occurs we aren't close to turning the corner and more banks will fail or be forced to merge.
On the housing market: Mortgage prices are still priced too high on banks' balance sheets. Until lenders "get real" and seriously shrink their mortgage exposure, this financial crisis lingers on.
On returning to basic business practices: Whitney says the banking system must return to the days of "My deposits financing your mortgage. Your deposits financing my mortgage." Until we return to that business model, the housing crunch goes on and on.
Whitney says its going to take time for the banking system to clean up its act (and for the economy to recover). She suggests the sooner the industry gets started, the faster we'll recover.
Whitney's remarks are worth highlighting because they illustrate a rare moment of candor, and in my view, are an honest assessment about the economy. As this crisis gets worse, comments like hers will assuredly come under attack from the institutions that are being targeted.
Some will try to intimidate the messengers and diminish their findings.
This week, for example, a Florida-based bank is suing an investment analyst whose research the institution disputes.
I'm a firm believer in transparency, especially when it comes to the murky and muddy world of finance.
We could use more experts like Meredith Whitney and fewer soothing homilies from CEOs.
So, here's a shout out to one Wall Streeter who's giving investment advice worth getting.


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