Meredith Whitney vs Banks - Round 2

meredith whitney bank failureA couple months back, I shared with all of you a video of Meredith Whitney in which she discussed her feelings that big banks were going to be seeing some hard times in the near future. This announcement was several months after she first announced that banks were very undervalued when they were near there lows back in March of 2009. As I have said before, I believe Whitney does a great job of taking an unbias approach at looking at valuation and expresses an honest, logical opinion. Well, today she went another round with the banks...and she came out swinging.

In an interview with CNBC, her main theme was "Avoid banks at all cost." Wow, that is a bold statement, especially from someone who said banks were a steal just over a year ago. Well, a lot has changed since then, and she has good reason to make such a statement. Here are a few reasons for her major concern.

First of all, she feels that the new Senate Financial Reform Bill will have serious adverse effects on the banking industry and greatly restrict credit, resulting in a gash in bank earnings. Referring to the senate she said:

"Politicians have proven far worse than our worst expectations,. It could be very bad for banks."
She referred to two major problems that stand out in the bill. The first is the rule for credit card companies to comply with individual state caps on credit card interest rates. The second, is regulation on how much credit card issuers could charge merchants for using their cards. By enforcing these two new rules, Whitney said the following:
"It's going to make accessing capital so difficult for pockets of the country," she said, particularly for small businesses that often depend on credit cards for funding.

In addition, the proposed rule on merchant charges—instead of benefiting consumers—will price community banks out of the market, Whitney said, restricting credit even more.

"Some of these regulatory proposals are going to make it so difficult for everyone involved that you'll see, I think, at least another $1.3 trillion (of credit) sucked out of the system."
She went on to explain more fully today's drop in credit card delinquencies. She said that the drop was a result of a new rule enforced earlier this year which prompted banks to not consider consumers of low credit scores as customers. She also said that she expects a "double dip" in the housing industry as well as more job losses in the employment sector. Overall, in regards to the economic recovery she said, "It's going to be rocky sledding." Conclusion...there may be some high sailing for FAZ, SKF, and SDS. Happy Trading.

Oh and PS...Pretty much disregard the earlier post regarding the break in Green Monday. PPT was able to bring it back before close...They never cease to amaze me!



    I would not touch a banking stock in goods times or bad.

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