Meredith Whitney is back, which has sent the majority of the world’s financial media into a frenzy. Whitney has been dubbed the financial oracle of Wall Street, as reported by the Financial Times a few days ago. In the autumn of 2007, almost a year before the financial crisis, she predicted that Citigroup – then the largest bank in the United States – was heading towards bankruptcy. Today, the analyst has returned with new predictions.
The traits and ambition of Meredith Whitney began to take shape when she was very young. “Meredith Whitney was considered an entrepreneurial child who would wake up at 5 am on weekends to deliver newspapers,” recalls Business Insider. After graduating with honors in History from Brown University in 1992, the outlet states that the skills she developed at university to understand the environment allowed her to better comprehend and connect the movements in the financial markets. Thus, the analyst began her career at Oppenheimer Holdings, a prestigious financial firm. Her boss at the time was Steve Eisman, known as the pessimistic financier who predicted the subprime mortgage crisis. After going back and forth, she resigned from Oppenheimer in 2009 and established her own firm: Meredith Whitney Advisory Group (MWAG), where she produced specific research for the sector she monitored. Her former employees complain that Whitney works from Bermuda during long weekends, according to the Wall Street Journal. A few years later, she would close that company.
In 2005, she married retired WWE wrestler John Layfield. They met while appearing on Fox News. Layfield claims that Whitney was not very kind at that time.
The new prediction: The guru is relaunching her firm at a time when she predicts that once again, a large number of banks may disappear. Whitney told CNBC that a combination of headwinds, including the U.S. real estate market and new banking regulations, will make it increasingly difficult for many regional banks to survive on their own. This will impact their stock prices and make them attractive acquisition targets. “There are good reasons why investors don’t want to be in bank stocks right now,” she told the Financial Times, “as there will be many fewer banks,” she insisted.
Whitney specializes in covering bank stocks and offers a subscription service for her articles on economics to individual investors for $257 per month. However, she assured CNBC that she will soon develop more personalized research for a limited number of clients, but at higher fees.
Her past precedes her: Whitney gained fame following the 2008 financial crisis for predicting the housing bubble and how this event would cause significant problems for the largest banks in the country. She predicted the financial crisis of Citigroup, forcing then-CEO Chuck Prince to resign from the company, which had to be bailed out in 2008. Its stock plummeted over 95% over the next two years. And fifteen years later, Citigroup’s stocks have still not fully recovered.
In October 2007, Whitney shook Wall Street when she published a report claiming that Citigroup was heavily leveraged and had more real estate assets on its balance sheet than previously disclosed.
Other Wall Street analysts downgraded the rating of Citigroup’s stock after her report. A few days later, Citigroup’s CEO, Charles Prince, resigned amid growing capital concerns. As the high-risk mortgage crisis ravaged Wall Street, Whitney gained credibility. Her work earned her a place in Michael Lewis’ famous book on the crisis, “The Big Short,” as reported by Business Insider.
Indeed, not all of Whitney’s predictions have been accurate. In 2011, she spoke about highly indebted cities and other local governments, as well as the increasing pension obligations, which she believed would lead to a collapse in the municipal bond market. However, this prediction never materialized. Additionally, Whitney opened a hedge fund in 2013 that closed down around two years later due to underperformance.
Whitney believes that this time there won’t be a major crisis because she considers that large banks are generally in good financial shape and have the means to absorb the cost of new regulations. “They are sitting in a very good position. They have more than enough deposits so they don’t face the same pressure as regional banks,” she assured the Financial Times. She thinks that if a recession were to occur, it would be mild. She was also firm in stating to CNBC that there won’t be a housing bubble this time because those loans are leveraged. “The reason I say there is no risk of an immediate recession is that there is no forced selling,” Whitney said to CNBC’s Sara Eisen during an interview on “Squawk on the Street.”
In the current landscape, Whitney believes that the issues affecting regional banks are collective unique cases that will not cause systemic damage. “There were unforced errors” that led to the bankruptcy of banks like Silicon Valley, Signature, and First Republic, “but I think it’s time for mergers and acquisitions in the regional banking sector. And that’s a good thing,” she said to Bolsamanía.com.
