Tom Brown, a veteran Wall Street bank analyst, thinks the stock of the most famous analyst in America, Meredith Whitney, is about to crater.
Because of the curse of her recent Fortune cover? No. (Although Meredith wouldn’t be the first executive whose reputation peaked with a cover feature. We had a couple in our day…)
Because she downgraded Wachovia (WB) at $8 and it’s now $18? Not entirely.
Mainly because, in Brown’s opinion, Meredith has just overstayed her bearishness:
Thomas Brown…disagrees sharply with Whitney’s contentions that banks need to rid themselves of problem loans and that their stocks won’t rebound until the write-downs abate.
Brown counters that the numbers Whitney keeps trotting out are actually lagging indicators. “During the last credit crisis the stocks hit bottom in November 1990, and the losses and nonperforming assets didn’t peak until well into 1991,” he says. “Every cycle there’s one analyst who races to be the most bearish, and this time it’s her. Honestly, I think we’ll look back and see that Meredith Whitney’s credibility peaked on July 15” – the day many bank stocks hit their low point for the year (so far at least).
Brown goes a step further, alleging that it’s “incredibly arrogant” of Whitney to tell banks and investment banks either to unload their problem loans and mortgage securities or to “get real” about how they’re valued. He says there’s plenty of history to indicate that holding tight may be the wisest course of action. “In the last cycle,” Brown says, “Morgan Stanley made a fortune buying written-down commercial real estate assets from banks at 40 cents on the dollar.” What peeves Brown most about Whitney is her unwillingness to assign a fair market valuation for the stocks she’s trashing: “The only explanation I can see is, she has no idea how to evaluate the possible downside risks.”
Brown, meanwhile, thinks bank stocks bottomed on July 15th and that everyone who’s waiting for good news to get in will be months too late.
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