Thursday, March 27, 2008

Meredith Whitney on CNBC

I watched an interview today featuring analyst Meredith Whitney from Oppenheimer & Co. She is a rising star who made her mark when she predicted that Citi would lower its dividend. She has been very accurate with her calls on financials and continues to offer some of the best research in this area. Read a little about Meredith here .

Her take on the financials right now is that there is still a ton of pain to come. One thing that stood out with me while listening was how fast the financials are self destructing. She admitted herself that the debt owned by banks is dropping in value so fast and so quickly due to the housing blowup that she has to keep revising her estimates. She explained that since November she has had to revise here estimate 30 TIMES on the financials. 30TIMES!!!

She admitted its tough to come up with estimates on financials because the banks refuse to sell any of their bad debt because they don't believe they are getting fair value for it(yeah right). Ms. Whitney thinks the exact opposite. She believes the value of this debt is dropping not rising because of this crisis and the pricing will only get worse because she predicts everyone will run to the exits at the same time to sell this debt. Supply and Demand anyone?

Her final take was financials are still priced 2-3 times book value. She said Merrill is worth around $29 versus the $41.90 it closed at today. She valued Citigroup at $10 versus the $21.79 close.

Meredith explained that if these companies would just sell all of their bad debt and clear their books then they would be worth buying after the stock prices adjusted. I believe that most of the banks don't have the capital to mark to market and would go under if they were forced to. I would guess Meredith thinks the same thing but she just can't say it. She advised the listeners to continue to stay far away from the financials. I agree.


Avl said...

Meredith was enlightening. Jeff, remember when I said weeks ago that the credit crisis could be visualized as “multiple, chaotic waves from a slowly-unfolding massive disruption in the oceans...where the waves roll and roll, ocean to ocean, interminably seeking an elusive equilibrium” The waves aint so scary when viewed from afar but frightening when forming tsunamis on one's own beach/harbor.
Well my colleagues in financing affordable rental housing via low-income tax credits are getting hit with bad waves. Neither Fannie, Freddie, Citi nor most banks are posting enuff profit to need such tax LIHT credits, so the credits go unsold or under-priced.
If Meredith is correct on the banks’ write-down-driven losses, this is going to be a long winter for tax-credit financed affordable rental housing.
Good news is that in cities with tremendous foreclosure rates (Detroit, Cleveland, Baltimore), they are buying the houses and land-banking them for future affordable housing projects.
Kinda Yin-Yang.

Jeff said...

Thanks avl

Yeah I agree. Anything financed in general is going to suffer. The great thing about areas like Detroit is houses are only 30 grand now!

Hopefully this will give some low income renters an opportunity to afford a house.

I am afraid Detroit may be a look into the future of the housing market in other parts of the country. There is simply too much inventory!

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