Meredith Whitney Is Not God!

The Wall Street Journal’s David Weidner wants you to know that Meredith Whitney does not deserve all the attention she is getting.

Meredith’s bold SELL call on Citigroup in the fall of 2007 was not Wall Street’s first, says Weidner. Meredith did not foresee how bad things were going to get. Also, Meredith has not been right about everything.  Etc.

To the extent that Weidner’s point is that global investors should not now decide that they have finally found The One True God of an analyst who will never lead them astray, fine.  We do tend to anoint Wall Street media heroes only to then have our hearts broken again (sorry!), so it is helpful to be reminded of that occasionally.

But otherwise Weidner just sounds like a grumbling old man in the corner. 

Meredith Whitney made a strong, bold call that startled the market, pissed off hundreds of clients and thousands of individual Citigroup investors, and infuriated the company itself.  She was dead right. More importantly, she has since stuck with and expanded that call for 18 months during which many of the country’s best and brightest–including inumerable CEOs and government officials–have told us that the worst was over, that Citigroup and the rest of the banks were “well-capitalised.”  

Throughout that period, Meredith has explained herself clearly, with conviction, and she has never fallen back on the mealy-mouthed double-speak that most analysts rely on to try to sound smart without actually saying anything.  She has handled her newfound fame wisely and well.  And, yes, as Weidner does not observe, perhaps because it’s indisputable, she has also been a pleasure to watch on television, which in an era in which most of the news has all the attractiveness of Freddie Kreuger, is a breath of fresh air.

Will Meredith Whitney blow it eventually? Of course. Everyone does. And how she handles that moment will reveal whether she has managed to keep herself in perspective (specifically, whether she has been able to enjoy the privilege and responsibility of having millions of people listen to her without letting it go to her head). 

In the meantime, we’re glad that Meredith, Nouriel Roubini, and a handful of other folks who had the guts to ridicule the consensus two years ago are now helping to guide us through the crash.

David Weidner:

[T]o put it bluntly, Ms. Whitney’s call on Citi wasn’t that great. It wasn’t the first, nor was it the best. Before we douse her with more champagne, put her on TV with Charlie Rose and hand over the keys to the Treasury Department, it might be worth taking another look at what really happened in October 2007.

Citigroup was already in deep trouble. Mr. Prince was on the hot seat for Citi’s inability to rein in costs. Credit issues were beginning to come to the fore when on Oct. 12, Dick Bove, then at Punk Ziegel & Co., Mike Mayo, then at Deutsche Bank and Charles Peabody at Portales Partners all issued sell ratings on the stock.

Citi held a conference call three days later and, according to a transcript, Ms. Whitney participated. She asked three questions of Gary Crittenden, then Citi’s chief financial officer. She asked about Citigroup’s banking business in Japan and other regions. She also asked how Citi planned to grow its credit card business. She asked no questions about Citi’s dividend or capital position.

Two weeks later, Ms. Whitney made The Call and cut her rating. The rest is history.

Well, almost. The Call did not say Citigroup was stuffed with hundreds of billions of dollars in toxic assets. It did not say that multiple banks will fail unless the government intercedes. It didn’t mention Bear Stearns (which she once expected to earn more than $11 a share in 2009), Lehman Brothers or American International Group Inc. It was a call that Citi was losing money and would have to take drastic action to raise capital.

Ms. Whitney deserves a lot of credit for calling Citi’s bluff about the quality of its balance sheet. There were, after all more than 20 analysts covering Citi at the time. But Messrs. Bove and Mayo also deserve credit for their earlier, and equally bold, sell calls.

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