Thread: Whitney: Wachovia Outlook Bleak

Whitney: Wachovia Outlook Bleak

Tuesday, July 15, 2008 4:22 PM

Wachovia Corp's earnings outlook has dramatically diminished and prospects for shareholders are bleak, said influential Wall Street analyst Meredith Whitney, who downgraded the stock to "underperform."

Wachovia shares, which have slumped 75 percent this year, fell as much as 20 percent in morning trade on Tuesday following the downgrade.

Oppenheimer analyst Whitney's report comes a day after the shares of major U.S. banks plunged amid concerns over stability in the sector and the future of the mortgage market.

The analyst, who correctly predicted a dividend cut at Citigroup last year, said U.S. banks' valuations on mortgage-related assets were "too high" and need to be quickly addressed to stabilize the financial markets.

Whitney, who slashed her rating on Wachovia from "perform," said capital was the main concern for the fourth-largest U.S. bank.

With a shrinking portfolio, Wachovia simply cannot cut costs fast enough to reduce capital erosion, she wrote in a note to clients. She expects Wachovia to have reduced its portfolio by $50 billion in the second quarter.

Whitney, who expects Wachovia to post losses in 2008 and 2009, said total provision for loan losses in the second quarter will be $9.5 billion. The bank will post negative loan growth in 2008 and 2009, she said.

STOCKS HEADED LOWER

Banks stocks are headed lower until asset valuations "get real," Whitney said, adding mortgage-asset values need to be quickly adjusted on the books to reflect true prices.

"We are hard pressed to find examples of financial companies that have successfully shrunk their businesses," she said.

The analyst said Wachovia's assumptions on housing price declines on its entire mortgage portfolio were "too aggressive," while Bank of America Corp was relatively more conservative.

U.S. banks have so far written off billions of dollars in mortgage-related losses and were forced to raise capital, often diluting shareholders, as the subprime flu spread across an array of debt securities.

Wachovia raised $8 billion in capital and slashed its dividend by more than 40 percent, after incurring heavy losses from its mortgage bets.

The company hired Robert Steel as its chief executive last week after ousting its previous CEO Ken Thompson last month.

Wachovia's shares recovered their early losses and were trading down 6 percent at $9.27 on the New York Stock Exchange. The broader KBW bank index was up nearly 2 percent.

http://moneynews.newsmax.com/financenew ... 13080.html

Analyst Warns on Wachovia Amid More Bank Worries

Tuesday, July 15, 2008 8:30 AM

NEW YORK -- An Oppenheimer Co. analyst warned Tuesday that the situation is increasingly bleak for Wachovia Corp., predicting the bank's mortgage portfolio will continue to lose value, "seriously jeopardizing" the company's ability to generate earnings.

The latest note of caution came as the government moved to reassure people their money is safe in the nation's banks. Yet fears about the system persisted and financial shares plunged in premarket trading Tuesday, signaling another tough day for the stock market.

Federal Reserve Chairman Ben Bernanke is scheduled to brief Congress Tuesday on the economy, which has been walloped by high energy prices and fallout from the housing slump and credit crunch. The testimony also comes amid a backdrop of rising oil prices and a slumping dollar, and as stock markets overseas tumble amid worries about the U.S. financial system.

Bernanke will also specifically address a rescue plan crafted over the weekend for mortgage financiers Fannie Mae and Freddie Mac, which hold or guarantee more than $5 trillion in mortgages _ almost half of the nation's total.

On Monday, shares of U.S. banks and financial companies swooned on concern that the government plan to shore up Fannie and Freddie would not be enough to keep them from failing, which could undermine the U.S. and global financial system.

National City Corp. shares fell nearly 15 percent on rumors of financial trouble, even though it said it was experiencing no unusual activity. Washington Mutual Inc.'s shares fell 35 percent amid worries about whether it had enough cash to handle the mortgage market downturn. WaMu said that it did.

Depositors lined up outside IndyMac Bank branches on Monday to pull their cash out after the savings and loan's assets were seized by the Federal Deposit Insurance Corporation on Friday. It was the largest bank failure since the collapse of Continental Illinois in 1984. It is estimated it could cost the FDIC between $4 billion and $8 billion out of the agency's $53 billion insurance fund.

In Asia and Europe, lack of confidence in U.S. regulators' ability to contain the problems sent shares tumbling.

But the government's top bank watchdog went on television to ensure people their deposits were not at risk, despite the brewing crisis.

"Insured deposits are absolutely safe," Sheila Bair, FDIC chair, said in an interview on CBS' "The Early Show." "The banking system as a whole is absolutely safe."

http://moneynews.newsmax.com/financenew ... 12891.html

Another bank that caters to illegal aliens. They obviously don't need MY money. I switched to a bank that doesn't accept matricular card and guess what? They're doing GREAT!