Tags: Whitney | Banks | Zombie | big

Whitney: Big Banks are ‘Zombie’ Institutions

Wednesday, 10 Aug 2011 12:13 PM

Big banks in the U.S. are too big to adjust quickly enough to the changing nature of the financial landscape and will plod along like zombies for the next 10 years, says Wall Street analyst Meredith Whitney.

In the banking world, so-called zombies have little net worth but are backed by the government and continue to meet their obligations.

"The large banks, which dominate most of the lending in the United States, are effective effectively zombie banks. Number one, they still have sledgy assets on their balance sheets that they're working off over time and number two they are capital constrained because they are required to hold more capital so they have to de-lever," Whitney tells CNBC.

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Meredith Whitney
(Associated Press photo)
"The U.S. consumer is de-levering therefore the banks have to de-lever because they are not serving as many consumers, and you've got an expense structure that just doesn't match the revenue structure."

About 80 percent of the revenue flowing into Wall Street banks comes from Europe and the United States, two economies that in structural decline.

"So the business is going to change and the banks are going to have to change with them. The problem is the biggest banks are just too difficult to move quickly," says Whitney, head of Meredith Whitey Advisory Group.

"They're too big right now. So you are going to see the big banks look very different over the next 10 years."

Whitney accurately called the financial crisis a few years ago when she predicted Citigroup to write down billions of dollars in toxic assets.

Today, however, markets look different.

"It actually reminds me more of the '70s than 2008. I think the market's actually harder now than it was in 2008 because it's a constant beat down," she says, adding "there are structural economic problems that we face...huge swings in the face of uncertainty."

"The certainty is we have real structural problems in this economy that have to be dealt with on a real long-term pragmatic basis, not on a quick-fix solution basis. It's not necessary for the White House to come out and fix everything. Let's have a long-term plan around things."

Just a few years after the government pumped hundreds of billions of taxpayer dollars into the banking sector, many large banks continue to struggle with the fallout of the housing bust, the Washington Post reports.

"They have some fundamental issues that some are improving, but as an industry they’re still weak and haven’t fully healed from 2008," says Matthew McCormick, a banking analyst at Cincinnati-based Bahl & Gaynor, the Post reports.

"I fear it’s going to be several years before they get out of the woods."

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Big banks in the U.S. are too big to adjust quickly enough to the changing nature of the financial landscape and will plod along like zombies for the next 10 years, says Wall Street analyst Meredith Whitney. In the banking world, so-called zombies have little net worth but...
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2011-13-10
 

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