Meredith Whitney Says No To Big Banks

Many months ago I shared an interview with Meredith Whitney in which she felt that banks were in for quite a ride upward. At the time, banks were currently just starting to see slight windows of opportunity, but there were not many (including myself) who believed they were on the verge of a massive rally. However, Whitney boldly declared that banks were currently in position to see some serious gains in their stocks. She was 100% correct. I have always respected Meredith as she is a straight talker and does not blindly go with the rest of the media cattle. She is her own person and looks closely at fundamental data. Her track record speaks for herself.

Currently, Whitney is singing a different tune in regards to big banks than she was last time. In fact, currently, she does not have one bank issued as a "buy" except for Visa and MasterCard. Above I have posted today's interview in which she goes into good detail just why she believes big banks are going to have a hard time finding ways to support at their current levels and why she sees weakness in financials. She also addresses problems heading towards the bank giant Goldman. She talks of the effect the recent fraud charges have had on the institution and how its "tarnished" reputation is factoring into their foreign relationships. At any rate, the video is a great resource and worth watching.

In addition to what Meredith said, there are other problems that are looming around banks. First off, the government is trying hard to get the recent Bank Reform bill passed, however, Senate voted against the bill on Monday, giving Wall Street some time to breathe. Although the bill was blocked, the anticipation still exists, which is not boding well for investors. The picture that has been painted of the need for more bank transparency does not transfer well to investor confidence.

There has also been talks of the 105 sections that banks are dealing with. Currently, banks were issued a section 105 clause, which allows them to refrain from reporting liabilities for sale or being marketed on their balance sheet for earnings reports. You would think that this section 105 is not significant. Well, banks are averaging 44% of their liabilities being listed in this section 105 clause, which is not showing up on their earning statements. The SEC is now addressing this issue and is aware that the system has been taken advantage of. Sure, it has provided a loop hole for banks to stay solvent for the time being, but the reality of their balance sheets are not being reported to the public. I expect to see any changes to this policy have a strong effect on stock performance.

Today we saw a bit of resistance in trading, providing that most of the day was in the green. Stocks retreated going into close which may show that we have a bit of resistance on our hands. I am expecting to see a bit of a strong selling day, either tomorrow or Wednesday, at which some of these financial stocks could take big hits. It will be nice to get a bit more volume and volatility back to Wall Street. Happy Trading.


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