Oppenheimer’s Meredith Whitney cuts outlook for JP Morgan (JPM), Citigroup (C), Bank of America (BAC), and Wachovia (WB) on fears of “revenue reversal from years worth of inherently flawed underwriting.” Whitney sees over $170 billion of reserve increases flowing through bank earnings on top of “business as usual” loan provisions. Reuters:
“When most talk about the shut down in the securitization markets, they more often focus on declining profits for the investment banks…, we argue the far more important consequence of the buyers strike in the securitization market is the impact on overall consumer liquidity, consumer spending and ultimately on consumer defaults,” Whitney said.
She estimated that over $3 trillion of liquidity would have been extracted from the capital markets by the year-end, due to the considerable stress on consumer liquidity from the “buyers strike” in the securitization market.
“Over time, the bank lending model will reclaim lost lending market share over the mortgage market, but bank balance sheets simply do not have the capacity to provide the liquidity lost by the shut down in the securitization market,” she said.
Whitney rates Citigroup “underperform.” She has a “perform” rating on Bank of America, JPMorgan Chase and Wachovia.