Tags: bailout

Whitney: Government Should Pick Winners

Tuesday, 30 Sep 2008 02:33 PM

Bank analyst Meredith Whitney says that the government must determine which financial companies will survive and which will perish as part of the bank bailout program that the Bush administration is trying to push through Congress.

"The government needs to decide who will be the winners and who will be the losers," Whitney, who works for CIBC Oppenheimer, told CNBC.

"If there is equal access for all institutions to receive capital or sell assets, that will put a lot institutions on life support that will ultimately fail anyway. Why not put capital on the winners?"

Whitney says that Citigroup is trying to establish itself as one of the winners through its purchase of Wachovia. But she's not too impressed with Citi, or its new purchase.

"Wachovia has the worst math in all of this," she says.

The key issue in how banks have valued their mortgage-related assets has been assumptions on how far home prices will fall in total from their 2005-2006 peaks, Whitney maintains.

She thinks the decline will total more than 40 percent. "But Wachovia, which had 60 percent of its portfolio in Florida and California, assumed only a 21 percent drop," she says.

With Citigroup having assumed a decline in the mid-20s, both it and Wachovia will have to mark down some of their assets, Whitney says. And Citi will have to raise capital to account for the write-offs.

Experts say bank concentration is to be expected now.

"The consolidation is a natural part of credit cycles. This is what happens when you get into credit turmoil," FDIC Chairman Sheila Bair told The Wall Street Journal.

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Bank analyst Meredith Whitney says that the government must determine which financial companies will survive and which will perish as part of the bank bailout program that the Bush administration is trying to push through Congress. "The government needs to decide who will...
bailout
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2008-33-30
Tuesday, 30 Sep 2008 02:33 PM
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