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Sell humans, sell banks says Whitney

Beware humans. Oppenheimer & Co analyst Meredith Whitney told the Times after JPMorgan upped its offer for Bear Stearns:

Jamie Dimon was clearly very upset with how distraught Bear employees were. His decision to raise the offer was definitely a human move and as a leader you can’t be human. He has made a big mistake and opened a Pandora’s box. If $10, why not $20, or $50? It’s like with a child: if you give the shareholders an inch, they will go for a mile.

Which might go some way to explain this, from Whitney’s latest unflinching report on the US banks.

We head back to the chopping block, reducing our 1Q08 estimates for U.S. banks on average by 84% (led by C at -309%), and our FY2008 estimates on average by 30% (led by C at -120%),to reflect 1Q08 mortgage and CDO related write-downs. Since November, we have cut estimates for financials over 30 times, with no clear end in sight.

961.jpgThe slashed forecasts are based on declines in the ABX indices, LCDX index and widening CMBX spreads, all of which means increased writedowns, rather than the propensity of the banks to staff up with those of a human bent. JPMorgan, with its lamentably human leader, gets off relatively lightly in fact, with an 18 per cent reduction to Q1 forecasts, and a 10 per cent cut for the full year.

With very little earnings visibility and little confidence in estimates, the reports adds, more investors will default to looking at multiples of tangible book value.

Upon this measure, the stocks look expensive based
upon historical standards. Due to the adoption of purchase accounting in 2001, goodwill has grown to unprecedented levels on bank balance sheets. As we believe we will begin to see goodwill writedowns during the first half of this year, we believe investors will focus more on tangible book value and stocks will quickly revalue to far lower levels.
Worryingly, as the US authorities get more and more heavily involved in managing the fallout from what Whitney calls the worst credit cycle in generations, politicians are not immune from the humanist threat. In an unrelated incident, Hillary Clinton admitted that she too was human. Confessing that she “misspoke” last week, when claiming that she had been under threat of sniper fire on a visit to Bosnia in 1996, Mrs Clinton said:

I made a mistake - I’m human, which for some people is a revelation.

Her opponent Barack Obama has yet to clarify his position on the issue.

This entry was posted by Helen Thomas on Wednesday, March 26th, 2008 at 9:02 and is filed under Capital markets, People. Tagged with , , , . You can follow any responses to this entry through the RSS 2.0 feed. Responses are currently closed, but you can trackback from your own site.

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Comments

  1. Mar 26   17:34 Posted by credit suisse hater [report]

    How do the Feds bail out a bank that gave out billions in bonuses to the same people that created this problem and for that matter an industry that made billions and created this problem. Just let them go bankrupt.

  2. Mar 26   16:50 Posted by Bhavin P. Kapadia [report]

    $10 is still dirt cheap for cheap, given it was once $120.

    Raising the offer is good, but don’t go too far ahead, as the analyst from Oppenheimer said above, they’ll ask for more and more - like a child.

  3. Mar 26   14:40 Posted by Anonymous [report]

    A lot of moving parts with ever changing rules of the game are creating a lot of crystal balls to get hazy. However, Whitney is one of those whose crystal balls are less hazy than others. I am in agreement with her assessment. For more of the assessment and views:

    http://riskyops.blogspot.com/2008/03/risks-of-irrational-fear-in-market.html

    http://riskyops.blogspot.com/2008/03/risks-from-feds-200-billion-term.html

  4. Mar 26   10:24 Posted by VP [report]

    I still go with the “binary” theory - half the banks out there are either bust or worth double current prices.

    Not sure where govnt rescues (NRK/BS, though little for the shareholders) will leave us - either it’ll save the financial system, or store up some huge collapse. Fed ammo will run short and there’s only so many JPMs.

  5. Mar 26   10:00 Posted by coffin dodger [report]

    @ Graham - go on then… forecast it.

    “the fallout from what Whitney calls the worst credit cycle in generations” - I think she’s spot on. Mind you, how can anyone forecast the market with the central banks making it up as they go along? Normal rules don’t apply atm.

  6. Mar 26   9:47 Posted by Graham Cox [report]

    ‘Since November, we have cut estimates for financials over 30 times, with no clear end in sight.’

    What a hopeless bunch of analysts. Do they not have any economist on their team to help them look further ahead than their eyeglasses. Since the US housing market has been one of the easiest market to predict for at the last six month, there should be no need for all these revisions. The bottom of the market may not be seen but is is forecastable.

  7. Mar 26   9:11 Posted by hedgehog [report]

    suggest you send her an FT Alphaville tin hat - if it turns out she was shorting HBOS I can’t wait to hear the evidence in her defence -

    ” I was on the front line in Basra at the time honest - look here’s a picture of me on an armoured vehicle with a Prince I met there - it must have been one of my flunkies acting without my knowledge”

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