Monday, April 20, 2009

Meredith Whitney: Foresight in Hindsight?

This entire week, Llenrock Blog is dedicating its posts to one of the most talked about banking analysts in recent memory...Meredith Whitney. She has been called the "Oracle of Wall Street" for her correct assertion 18 months ago that Citibank was in trouble. Since then, fanfare and accolades by her peers and the press have sent her to the very top of her business. Today we will take a look at what made her so popular. On Wednesday, we will take a look at a recent interview with Steve Forbes, to see what she predicts for the future. And on Friday, we will take a look at one of her detractors, and why it is so dangerous to place our collective faith in one very interesting person.

If I only knew then what I know now. How many times have you uttered that phrase in your life? Well if you are stock analyst Meredith Whitney, probably not too much. For those of you not in the know, Meredith Whitney has become a polarizing figure in the world of banking. The media loves her. Bankers? Not so much. You see, last summer, when everybody was optimistic and hopeful that the economic downturn had seen its worst days, it was Meredith Whitney who predicted that the worst was yet to come. And she's done it repeatedly in the face of naysayers with astounding success.

First, some background. Whitney graduated with honors from Brown University. In 1993 she joined Oppenheimer & Co. as a research associate covering the Oil & Gas Industry. In 1995, she joined the company's Specialty Finance Group. Later, in 1998, she left the company, eventually becoming the Head of Financial Institution Research at Wachovia. Whitney returned to Oppenheimer in 2004, where she covered banks and brokers.

She made headlines 18 months ago, when she wrote a particularly pessimistic, but accurate report on Citigroup, on Oct. 31, 2007, which got her attention from many Wall Street analysts, and news media. She has since followed this report with similar reports and predictions, which have tended to leave the companies involved with lower stock prices as the market has taken her opinion seriously. One of her claims is that goodwill is built in to a lot of companies share prices, and that as the market moves into dark times, this goodwill will dissipate.

How good was The Call? If an investor sold Citi the next day, they would have saved themselves a 92.8% loss through last week.

In 2007 she was listed as the second best stock picker in the capital markets industry on's list of "The Best Analysts: Stock Pickers", as well as being named "one of NY Post's 50 Most Powerful Women in NYC.

Her extremely bearish view on banks landed her on the cover of the August 18, 2008 issue of Fortune Magazine. Even before the problems in September that befell Merrill Lynch and Lehman Brothers, she is quoted as saying, "It feels like I'm at the epicenter of the biggest financial crisis in history."

Time and time again she has been right. Three months ago, she was asked her opinion on the concept of a bad bank and what it could potentially do to the banking sector. After viewing the clip below, ask yourself if she prognosticated correctly.

On Wednesday, we'll take a deeper look into Whitney's thoughts on where we stand now, and what the future has to bring.

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