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Whitney: Banks Not Out of Woods

By Dan Weil   |   Friday, 24 Apr 2009 03:38 PM

The recent reports from major U.S. banks that they have returned to profitability isn’t enough to make superstar bank analyst Meredith Whitney a bull on the industry.

Whitney, who gained fame for predicting the banks’ woes of late, told Bloomberg TV they will probably fall back into the red following their first-quarter profits.

“I expect a lot of the banks to turn what were positive earnings this quarter back to negative earnings in subsequent quarters,” says Whitney, who has founded her own firm, Meredith Whitney Advisory Group.

Big banks will pass the government’s stress tests, she says.

But Whitney predicts that Citigroup will reduce its credit lines by at least $500 billion and that the bank and other issuers will chop $2.7 trillion off credit-card lines.

That could send home prices down even further, because consumers will have less money to spend, she says.

“When your line gets cut on a credit card, you effectively got a pay cut,” Whitney points out.

For instance, Whitney says the developments that lifted Bank of America’s first-quarter earnings, such as expanding credit spreads and profits from sales of government agency securities aren’t replicable.

“The underlying credit is deteriorating at an accelerated pace,” she says.

Other bank experts are mixed in their views of the industry. While Mike Mayo shares Whitney’s skepticism, Richard Bove says the strength of banks’ operating units points to better times ahead.

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The recent reports from major U.S. banks that they have returned to profitability isn’t enough to make superstar bank analyst Meredith Whitney a bull on the industry.Whitney, who gained fame for predicting the banks’ woes of late, told Bloomberg TV they will probably fall...
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