Meredith Whitney and Banks

meredith whitney bank upgradeFinancials got a big boost this morning as investors are anticipating solid numbers from 3 of the major banks (BAC, CITI, JPM) that report earnings later this week. Meredith Whitney was interviewed this morning on CNBC and gave a rather favorable report on banks for investing in the short term.

In times past, Whitney has been known to tell the story straight, which the past 12 months, has been very, very dismal. She was one of the first who forewarned about the credit crunch and the risk of collapse from the large banks. However, today she said banks could be a great place to invest for the next few months. She said, "Banking stocks will be good buys at least in the short term as the industry takes advantage of the mother of all mortgage quarters." She also said that Goldman Sachs probably will earn $4.65 per share for the second quarter, $20 for the year and more than $22 for 2010.

With the upgrade from Whitney came a lot of green for financials this morning. FAS is up over 10% as many investors are agreeing with Meredith Whitney in hopes for some strong earnings reports. This is also boosting up the Dow, which was trading above 180 earlier. Bank of America will be the first to report, which should create a response the market. If earnings do indeed crush expectations, we could maybe see another little run for financials.

Today is clearly a pre-mature reaction to a strong earnings report. Now the standard has been set. Investors now risk the possibility of earnings coming in at par, or even worse, under market expectations. Such a result would cripple financials and most likely cause for another bank down spiral.

Whitney was not all positive with her remarks regarding banks. She did preface this whole upgrade with the term "short term." She also expects unemployment to continue to be a huge problem for the economy and banks for the next year and a half. She said that was something that banks are going to have to deal with for a while. However, in this "mother of all mortgage quarters," she expects the banks to see nothing but green. $4.95 trades + 65 cent option contracts. No minimums. No catches. No, seriously.

I personally kind of agree with Whitney in regards to banks posting bit stronger results this quarter. However, I also feel that some investors have also now factored many of the influences which are causing them to be so profitable. Accounting changes, TARP and TALF funds, government incentives, and a 0% fed rate have to be considered when evaluating the profits of financial institutions. If investors don't evaluate such things, they are failing to evaluate the foundation of these companies as well as their sustainability. If you are an investor who looks no further than a quarter, than yes, maybe banks are for you. As for me, I find today a great day for me to pick up some FAS puts. Thanks Meredith.


  1. LicensedToKill Says:

    what is the strike prize, exp. date for you puts???

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