Tuesday, March 24, 2009

Janet Tavakoli versus Meredith Whitney

Janet Tavakoli of Tavakoli Structured Finance has put together a paper questioning the view in parts of the media that bank analyst Meredith Whitney has been early on her calls warning about problems in the financial sector.

Tavakoli writes:

Much of the financial media blows in the wind of PR machines. AIG, Washington, Congress, various former investment banks, banks and others worked overtime to spin financial information over the past several years forcing competent reporters to engage in time intensive research on complex financial products. Other times, the press simply misinterprets the facts.

Last week, Charlie Rose billed Meredith Whitney on his show as the woman who gave early warning about AIG. I found that surprising given that as far as I know, she did not. The L.A. Times’ review of House of Cards, a book about Bear Stearns, says author William Cohen gave Whitney credit for warning for some years that trading in credit derivatives and mortgage backed securities set us up for a credit implosion. This is not her expertise, but it is mine, and to the best of my knowledge she did not. Ironically, Whitney rated Bear Stearns perform and only downgraded it to underperform on March 14, 2008 as it tumbled 53% in one day Whitney rated Lehman outperform in March 2008, while beleaguered Bear Stearns merged with JPMorgan Chase. She downgraded Lehman to perform towards the end of March 2008, and Lehman went under the following September...Meredith Whitney seems best known for her analysis of Citigroup at the end of October 2007. Jim Rogers appeared with Whitney earlier in the year on Cavuto on Business and stated he was short Citigroup (he shorted C in late 2006/early 2007), and he said Citigroup was going to $5. Whitney rated it sector perform from October 3, 2005 until October 31, 2007. The stock lost 7.9% versus a 7.5% gain for the Philadelphia Stock Exchange/KBW Bank Index during this period (David Gaffen, WSJ, Nov 1, 2007)...
In a chart, Tavakoli then chronicles the ratings that Whitney had on Citigroup at various times, here.

Coincidentally, Whitney is at the FFI conference I am attending. I showed Whitney the article that Tavakoli wrote and asked her to comment.

Whitney replied, "Why should I? She is just jealous."

UPDATE Tavakoli responds to Whitney:

The facts in the article speak for themselves.

It’s a shame what happens with PR spin.

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