Meredith Whitney Returns: ‘There Will Be Many Fewer Banks’

Meredith Whitney, once dubbed “The Oracle of Wall Street” for predicting the Great Financial Crisis, is relaunching her firm at a time when she predicts that, once again, A large number of banks may disappear.

Whitney said a combination of headwinds, including the US housing market and new bank regulation, will make it difficult for many regional banks to survive on their own. This would weigh on their stock prices and make them attractive takeover targets.

“There are good reasons why investors don’t want to be in bank stocks at the moment,” Whitney told the Financial Times. “There will be very few banks.”

Whitney’s eponymous research boutique specializes in covering bank stocks, but also writes thematic pieces about the economy. It started offering access to individual investors earlier this month for $257 a month. Whitney said it would offer more bespoke research to a limited number of clients for a higher fee.

Whitney predicts a wave of mergers that will whittle down the ranks of mid-sized lenders, especially in areas of the country like Texas that are showing economic growth.

“There are a lot of difficulties facing regional banks right now,” Whitney said. “Just what kind of debt pressure are they going to be under and can’t even cope with the capital requirements.”

Whitney rose to fame in the wake of the financial crisis for his presenter calls on the housing bubble and how it would cause significant problems for the nation’s largest banks.

He is best known for warning in the autumn of 2007, about a year before the financial crisis, that Citigroup, America’s largest bank at the time, was headed for bankruptcy. Within months, Citi’s then-CEO Chuck Prince was gone and the company bailed out in 2008. Its shares declined by more than 95 percent during the next two years. A decade and a half later, Citi’s shares still haven’t fully recovered.

Some of Whitney’s other public investment calls since then have seemed visionary. In 2011, he predicted highly indebted cities and other local governments, and increased pension obligations, would cause a crash in the muni bond market that never materialized. Whitney opened the hedge fund in 2013, which closed after about two years following poor performance.

Whitney thinks the big banks are generally in good financial shape and says they have the financial wherewithal to absorb the cost of the new rules.

“The big banks are sitting in pretty good shape,” Whitney said. “They have more than enough deposits so they don’t face the same pressure as regional banks.”

She thinks that if there is a recession, it will be mild. His biggest call since relaunching his firm has been on the US housing market, which he thinks will enter a protracted recession, but not crash.

“The foundation of consumer banking is housing, and so I’m not worried about the economy because homeowners have a lot of wealth right now,” Whitney said. “In the near and medium term, things are great.”

Whitney said the US housing market benefited from having lower leverage than in 2007, with the average US homeowner holding a mortgage that is just 30 percent of their home’s value. This means that some homebuyers will find themselves in a position where they will owe more than their home is worth, and will be forced to either sell or go into foreclosure. Whitney predicts that US housing prices will decline by approximately 2 to 3 percent during the next five years.

He is also optimistic about commercial real estate. Questioning the productivity of remote work, she thinks employers will require their employees to return to the office. This would reverse the recent decline in the value of office buildings and other properties in city centres.

She also thinks the regional banking crisis is over, even though the economics are still stacked against many smaller institutions. Whitney said, “Silicon Valley Bank and others that have failed—I view them as unforced errors.” “Banks reported good first quarter earnings and what the market is not telling you is that other banks made similar mistakes.”

Since shuttering his research firm nearly a decade ago, Whitney has held a number of roles at start-ups, none of which lasted long. Most recently, Whitney joined buzzy fertility care start-up Kindbody in April 2021 as Chief Financial Officer. She held the position for just 11 months, but remains an advisor to the company, which reached $100mn in funding earlier this year. Whitney declined to say why she left the role after less than a year.

Whitney said, “I stopped writing about banks a decade ago because banks got boring.” “Now I have more than enough to write. Banks are interesting again.