Sunday, August 3, 2008

Meredith Whitney On the Financials and the Mortgage Crisis

CNBC"s Maria Bartiromo interviewed Meredith Whitney on the state of the financial stocks. Here's a "loose" transcript via Mr. Mortgage:

Whitney says:

• Fed knows there is no quick fix. Every time they open window they lose fire power for next crisis. There is not much capital out there that wants to rescue brokers.

• I keep saying we are less than 50% done with this crisis and are still there.

• All capital raised by banks so far ($450 billion) was only to plug holes and not to grow business.

• All banks’ ‘assets’ marked at unrealistic levels

• Creditors have cut mortgages and credit lines to the areas with the worst house prices depreciation. That will hurt consumers even more.

• Corporate loan market will get hit soon as well.

• Maria was prodding to find out how quickly the stock prices were going back to the highs. Pump Pump Pump! Whitney says: There is no way the bank stocks will return to the highs in next 3 years. No comment on 5 years out.

• The brokers are not growing capital and diluting the shareholder. They can’t grow earnings that way.

• Merrill raised tremendous amounts of capital just to plug holes. They still have to shed assets and are not out of woods yet.

• Most every bank has to write down assets like Merrill and raise capital.

• Banks who got in bed with housing assets such as C, UBS, MER, BAC, WB will be in the market ‘soon’ to do another capital raise.

• Everyone was involved in mortgages. All of these banks are in trouble now.

• 25 institutions will have to raise capital in next two months.

• Banks will cut dividends. I don’t understand why banks raise capital and then still pay a dividend. It is not prudent for board members to keep paying when they are so capital restrained.

• Fannie Freddie in same situation as every other institution. All banks are betting on house price assumptions that are far too optimistic. No banks are close to Case-Shiller.

• Due to banks’ bad math, losses will apply to everyone across the board.

• In 2006-07 $2.5 trillion was securitized. Nobody can replace this mortgage money and housing prices will continue to suffer as a result.

• When Maria asked if Lehman will survive, she said ‘huh huh huh huh huh huh I don’t know’.

• I am very opinionated on the short selling rule. If you want to have faith in the capital market there has to be two sides to every trade and people have to be able to hedge. Restricting free trade will have the opposite effect and endanger the markets.

• Jamie Dimon and Goldman are ‘pros’ and very cautious and aware of risks.”

The video is here.

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