Stock Traders Blog

I came across some of the old articles that talked about Meredith Whitney, Goldman Sachs analyst Richard Ramsden and Second Curve Capitals Analyst Tom Brown’s opinion on Bank of America last August. After reading them I find Meredith Whitney is admirable but Richard Ramsden and Tom Brown are laughable.

Bank Of America (BAC) A-OK, Says Goldman: No Capital Needed

Wachovia (WB) and BOFA (BAC) Have Bottomed; Meredith Whitney Missed Boat

Maybe you will feel the same after reading them. Whoever was able to predict this financial meltdown was basically seen as hero in the financial community. Meredith Whitney was right last year and I tends to believe she is going to be right again because she has more power now and her call will effect the sentiment of the market. She just updated her view on financial sector. I quote some her lines here to remind myself of her opionion.

We believe we are on the onset of changes impacting the mortgage market that could meaningfully influence earnings of the banks over the near to medium term. Accelerations in loan modifications will materially change how loss reserves are measured, which will result in lower loss provisioning and higher earnings over the near term

the U.S. government increased allocated incentives to mortgage companies by a fifth to modify home mortgages, while total incentives to servicers now stand at $18 billion and could climb higher. This is not the only incentive to banks. Modifications “cure” past dues and shift delinquent loans to current loans. As banks’ loss provisions are based upon past due or delinquent loans loss provisions will decline as modifications rise.

The clear risk here is timing as current recidivism rates range 22-46% on modified loans. Banks may take advantage of a timing arbitrage, which could benefit near-term earnings

“As we continue to believe the bank sector faces numerous challenges, we are most comfortable with stock valuations close to tangible book per share levels,” Whitney said. Pointing to Bank of America, JPMorgan Chase, Wells Fargo and Citigroup, she expects future increases in tangible book value, except for Citigroup.

Related posts:

1. Meredith Whitney Showed Off Her Power Today
2. Bank Tangible Book Value Comparasion - BAC, JPM, WFC, USB, C, BK, FITB
3. Cash is King But I Can not Withstand the Temptation
4. From Bank of the Ozarks to See Bank of America
5. Federal Reserve’s Credibility is More Imporant Than Bank’s Captial Rasing