Bulls, Bears & Bucks #56: Geithner's plan in werking

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Whitney: Bank Losses Through 2010

Carl Gutierrez, 04.08.09, 01:15 PM EDT

Meredith Whitney argues that financial firms have failed to reserve against real estate and mortgage losses.

In a report to clients of the Meredith Whitney Advisory Group, the closely followed bank stock analyst reiterated her bearish position on the financial sector and the economy in general. Though some are forecasting a recovery in late 2009 or 2010, Whitney believes that banks have still not properly reserved against greater than expected losses in home prices. Her earnings forecasts for 2009 and 2010 are almost across the board lower than consensus.

In Whitney's narrative financial firms will relive the worst struggles of 2008 because housing prices in the major markets will fall much further than expected. Bank of America ( BAC - news - people ), HSBC ( HBC - news - people ) and even the resilient JP Morgan Chase ( JPM - news - people ) will have to increase reserves as real estate losses mount unabated. Home price expectations for the banking industry play a critical role in their entire accrual accounting methodology.

"When a bank carries both a loan and a loss reserve against such a loan on its balance sheet, where that bank expects home prices to bottom is a key assumption much like unemployment or interest rates," Whitney warns.

Her report, titled, "The Agony of Incrementalism" forecasts home prices to fall by more than 66.0% of current bank assumptions in the 10-City Case-Shiller Index.

"Increased liquidity drove home prices higher," Whitney explained, "and contracting liquidity will drive home prices lower." She pointed out that 70.0% of homeowners need leverage to buy and stay in their homes, therefore an overall declining mortgage market will put pressure on prices.

As home prices fall and as unemployment rises, banks will have to retain earnings to fund greater reserve funds as part of a cycle that Whitney says has "no end in sight as both forecasts continue to rise quicker than expectations." It's a "never ending game of catch up," she says because the banks have been underestimating losses ever since the credit crisis began a year and a half ago. The average bank thinks the total decline in housing prices was going to be 30% at the end of the first quarter. Now, says Whitney, they're thinking more like 37% -- still behind reality.

As far as the big banks are concerned, Whitney believes JPMorgan Chase will earn $1.15 per share this year and $1.05 in 2010, while Wall Street is looking for $1.47 per share in 2009, and $2.51 the following year.

It goes downhill from there. Wells Fargo ( WFC - news - people ), Whitney predicted, will only earn 65 cents per share, and 55 cents per share, in 2009 and 2010, respectively, while the Street's forecasting $1.18 and $2.07.

Bank of America will even worse, Whitney forecasts, earning only 4 cents per share this year, and 20 cents per share the next, meanwhile the Wall Street is counting on 38 cents per share and $1.39 per share, respectively.

Whitney predicts Citigroup ( C - news - people ) will lose $5.00 per share this year and $3.50 per share in 2010, well off the Street's own dour forecasted loss of $1.18 per share in 2009, and 9 cents per share in 2010.

Goldman Sachs ( GS - news - people ) is the highlight, as Whitney predicts the broker will soundly top Wall Street's estimates, at least this year. Whitney expects Goldman to earn $8.55 per share this year, while the Street's analysts on average are looking for only $7.95. In 2010 she expects earnings to edge up to $9.10 per share, though Wall Street thinks it will be $11.08.

Whitney doesn't think as much of fellow broker Morgan Stanley ( MS - news - people ), calling for earnings of only 55 cents per share in 2009, and $1.05 in 2010, greatly lower than the $1.85 and $3.05 anticipated by Wall Street.

Credit card companies will fare as expected in 2009, with American Express ( AXP - news - people ) recording earnings of 65 cents per share, essentially inline with the Street's 63 cents per share outlook. Meanwhile, she expects Capital One Financial ( COF - news - people ) to los 30 cents per share, also inline with the 28 cents per share loss Wall Street has forecast. Whitney has forecast huge, recession-prolonging cuts in credit card lines as banks continue to doubt the credit worthiness of the American consumer

Whitney believes that Amex won't grow earnings at all in 2010 and that Capital One will post a loss of 35 cents per share. Wall Street on the other hand is looking for a strong turnaround for the credit card hawkers, predicting Amex will record earnings of $1.23 per share, while Capital One will turn a profit of 70 cents per share.

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Op zondag 12 april 2009 13:56 schreef 0100 het volgende:
Werkloosheid in Luik meer dan 40%.
Dat is wel heel erg veel. Dan hebben wij het nog aardig goed in Nederland.

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Op zondag 12 april 2009 15:14 schreef pberends het volgende:

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Werkloosheid Luik boven de 40 procent

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Op zondag 12 april 2009 15:14 schreef pberends het volgende:

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Werkloosheid Luik boven de 40 procent

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Op zondag 12 april 2009 16:04 schreef pberends het volgende:
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Caribean banking centers !

Iets zegt me dat dit gewoon de Fed is die vanuit Puerto Rico opereert.

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Op zondag 12 april 2009 15:36 schreef Lemmeb het volgende:

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Het is daar al veel langer een troosteloze boel met een bizar hoge werkloosheid. Die kredietcrisis doet daar alleen maar een klein schepje bovenop.

Luik is het Detroit van België. Maar wij hebben Leeuwarden!

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Op zondag 12 april 2009 16:08 schreef Dinosaur_Sr het volgende:

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Terwijl ze met FN Herstal toch een groeimarkt hebben daar in Luik. Of worden die tegenwoordig ook door 9 jarige Bengalezen geassembleeerd?

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Op zondag 12 april 2009 16:04 schreef pberends het volgende:
[ afbeelding ]

Caribean banking centers !

Iets zegt me dat dit gewoon de Fed is die vanuit Puerto Rico opereert.

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Op zondag 12 april 2009 18:44 schreef MoltiSanti het volgende:

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Brazilië meer dan 140 miljard

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Op zondag 12 april 2009 19:11 schreef pberends het volgende:

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Bezuinig 100% op je defensie, koop gewoon Amerikaanse staatsobligaties als verdediging.

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Op zondag 12 april 2009 23:50 schreef Lyrebird het volgende:
Zeg pberends, ondanks al je paniekverhalen in dit topic blijft de Dow maar stijgen. Hoe verklaar je dat?

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Op maandag 13 april 2009 00:12 schreef Lemmeb het volgende:
Er zit nog een hele deflatiegolf aan te komen. Wat mensen steeds vergeten is dat de inflatiecijfers steeds berekend worden door prijzen te vergelijken met het prijspeil van een jaar eerder. Dat kan ook moeilijk anders.

Echter, dit geeft nogal een vertekend beeld, want in een jaar kan er veel veranderen. In theorie kun je beter de instantane prijsinflatie meten, d.w.z. de prijsontwikkeling op dit moment (de eerste afgeleide van het prijspeil). Maar volgens mij is dat bijna onmogelijk.