The Whitney Ratings

With all the attraction to Meredith Whitney these days, we thought we'd highlight her new firm's ratings of the various financial stocks she covers. As shown, Whitney has a Neutral rating on Goldman (GS), JP Morgan (JPM), Morgan Stanley (MS), American Express (AXP), and Bank of America (BAC). She has a Sell rating on Capital One (COF), Wells Fargo (WFC), and Citigroup (C).

We also provide her estimates for first quarter earnings for the companies. As shown, she's higher than the average analyst estimate for Goldman, JP Morgan, and Morgan Stanley, and she's lower than the average for American Express, Bank of America, Capital One, Wells Fargo, and Citigroup.

It will be interesting to see how analysts such as Whitney change their earnings estimates for financials now that the mark to market rules have been changed.

Comments

[DaveW:]

Hmm, 'interesting' is a word I'd reserve for something more constructive. I'm thinking 'disgusting', 'shameful', 'twistedly opaque'.....well, you get the idea how I feel about this.

Disclosure: just my own opinion, skewed by the fact I am currently greiving the death of our once great free market.

Apr 02 06:31 PM

[Abe Mishima:]

Merideath has got her math wrong. Q1 earnings of WFC before any adjustments should exceed 10 cents/sh easily. That is my estimate. When WFC reduced its dividend, that left more margin for earnings growth in Q2. So why the sell rating?

Apr 02 07:06 PM

[Buy and Hol...:]

You know, once again, they're talking about changing mark to market as being a solution to the problem. The thing is, if we're concerned about what is on the balance sheet of the banks, getting rid of mark to market doesn't do a thing to make things more clear!

We need clarity, and getting rid of market to market only makes things more opaque.

Apr 02 10:57 PM

[THofler:]

B&HP,
We've had a full implementation of mark-to-market for 12 months now. Is everything crystal clear for you now?

Apr 02 11:54 PM

[pacman1947:]

Does she include TARP money channeled through AIG as income in her estimates? That would explain the differences.

Apr 03 08:03 AM

[Mark Bern:]

I don't think B&HP said anything that would lead me to believe that he thought bank balance sheets were transparent at any time. He simply stated that eliminating the mark to market rule would make them more opaque.

In order to invest with confidence the investor needs to be able to fully understand the company in which he/she is investing. Transparency in reported assets and liabilities is essential to attain the proper level of understanding. With the banks holding assets off balance sheet (in the $Trillions) it is hardly a transparent reporting system.

How could anyone invest in a company that they know is hiding something? Why are they hiding it? It couldn't possibly be good if they need to hide it? If these assets were valuable, don't you think they would be scrambling to move them to their balance sheets to look better? Of course, they would. But they're not.

The report earnings in Qtr I will not be a meaningful representation of the financial conditions of the banking industry. There is absolutely no "quality" represented by these earnings reports. They are putting lipstick on a pig.

Many of the "too big to fail" banks are just trying to put off reporting real earnings with the hope that the economy will turn positive. If they can hold off long enough, maybe, the hope, they won't have to tell the truth because the truth will change in their favor and won't look so bad. The key word here is "hope." The HOPE that things will get better. They HOPE that they won't have to tell the world the truth.

If this economic downturn continues without significant improvement, which I believe is the most likely outcome, the banks will eventually have to come clean. At that point things will be worse than they already are and we could start this whole process (recession) all over again. The worst part of all this is that the government is facilitating the charade. I, for one, am seriously disappointed because this is the "HOPE" that we hoped we were all being promised.

Apr 03 10:21 AM

[Emerald:]

For all the noise out there, I don't see any of the major bank CEO's listing their accurate derivative exposure. For example, Jaime Dimon at Morgan Chase keeps repeating that there derivative book is totally "hedged". Perhaps this is true but the average investor cannot determine this as there is no full disclosure of CDS and interest rate swaps, ther is no tradable public exchange and we have no idea of the counterparty creditworthiness. Ying & Yang has stated the situation correctly. Geithner will try and take care of the senior bankers by stretching out the problem and hoping the economy grows sufficiently to wind down the bank exposure. Bear Stearns was quickly put to Dimon to eliminate the large JPM exposure to Bear. Meanwhile, the taxpayer will be the ultimate recipient of the Bank "put". Caveat emptor!

Apr 03 11:33 AM

[cholmley:]

You guys keep on banging on about derivative exposure yet have no clue what you are talking about.

A large market making bank will have gross positions in the trillions as every trade is counted in those ridiculous numbers quoted above, but the net positions are extremely small.

Lets just give you one example, say Citibank trades an Interest Rate Swaps with Goldman Sachs in the amount of 500 million for 10 years on Monday then reverses the trade using the same counterparty the very next day, that notional of 1 billion will stay on the books for 10 years yet there is only the difference between the rates traded at risk, multiply that by 250 trading days across different products different currencies and different locations and the trillions are reached effortlessly.

Banks have risk managers and auditors they are not about to open their trading books to the public, the problems have not come about because of derivatives per se but large unhedged portfolios and banks with managers who were just ignorant of the true nature of the products they held.

Find a bank with good strong management and do not get distracted by notional amounts, look for the net exposures.

Apr 04 10:58 AM

[Abe Mishima:]

The Whitney scorecard on Q1 EPS:

WFC est. 0.06 actual 0.56
BAC est. 0.04 actual 0.44
C est -1.14 actual -0.18
COF est -0.02 actual -0.45

Figures are from marketwatch.com. A dart-throwing monkey could make more accurate predictions.

Jul 02 07:23 PM