Meredith Whitney Slams Wachovia: Actionable Short Opportunity

Oppenheimer's Meredith Whitney is out downgrading Wachovia (WB) to Underperform noting that as more news about WB comes out, they are increasingly convinced that the outlook is bleak for equity shareholders. WB has said that it's in the process of "enhancing the capital efficiency of the balance sheet" and "reducing mortgage exposure."

The firm estimates its mortgage portfolio will decline by 9% sequentially and total on-balance sheet loans will decline by at least 5% by year-end. The problem is the "denominator effect"; the loss numerator grows while the asset denominator declines, resulting in spiking loss ratios, lower assets, and lower net interest income, at least 50% of its earnings. In this very real scenario, expenses simply can not come down fast enough, seriously jeopardizing WB's ability to grow earnings.

Notablecalls: Looks like Meredith has given WB stock the proverbial kiss of death. I expect the stock to be down to the tune of 15% to 20% today (or possibly more). Anything above $8.50-$9 level is an Actionable Shorting opportunity this AM.

Comments

[Ames Tiedeman:]

Looks like this one will be gone. I am amazed at how far and fast these names have fallen.

2008 Jul 15 07:59 AM

[valueinvest...:]

To Bear Stocks: Everyone has made money shorting financials this year. Nothing too spectacular about that call.

2008 Jul 15 12:21 PM

[ggbbppl:]

go ahead girl tell it as it is. bravo

2008 Jul 15 02:04 PM

[Ames Tiedeman:]

This is one analyst who has been dead on. She has also suggested, to no surprise to many, that BAC will be cutting their dividend. Her calls on C have been correct too.

2008 Jul 16 07:03 AM

[thedomfc:]

Oops!

2008 Jul 17 10:39 PM

[Ames Tiedeman:]

BAC and C did not cut yet. I suspect they will unless their earning turn up by Q4.

2008 Jul 19 01:30 PM

[Dan Jacome:]

WFC for WB making the rounds

2008 Jul 20 12:23 AM