Signup for our free newsletter:

Whitney vs. Merrill, Citigroup, and Wells Fargo

Written By Brian Hicks

Posted April 21, 2008

Months after issuing a dire forecast for Citigroup, the stock now trades at $24, with a forecast of even more doom and gloom from Meredith Whitney. 

It was Halloween 2007 when she suggested that Citigroup was a growing train wreck since the ratio of tangible assets fell to 2.8%, the lowest in decades.  She even said Citigroup may have to cut its dividend, raise cash, or sell assets to raise more than $30 billion to raise capital.

Ten weeks later, her thesis was validated.  She absolutely nailed it.

But Citigroup doom and gloom is far from over, according to Whitney, who now believes the bank will cut its dividend for the second time this year on escalating losses.  “The company has seriously constrained earnings power,” she says.  The bank may also have to “seek additional capital from outside investors.”

When asked if the bank may need additional infusion, Gary Crittenden reportedly answered, “You can never say never.”


Whitney went after Wells Fargo, too, believing that “Wells Fargo is under-reserved by at least $4.5 billion as of Monday and will need to raise capital to restore its balance sheet this year and perhaps by even more in 2009.” 

She cut her Wells Fargo 2008 profit estimate to $1.20 from $2.15.  That $1.20 estimate is now the lowest estimate on the Street.  “If losses continue to accelerate past the 2Q, our well below Street estimated will prove too optimistic.”

Again… ouch.

But Whitney doesn’t stop there.  After Merrill Lynch’s CEO shrugged off a Q1 loss, saying the company is “well capitalized,” Whitney questioned his optimism, saying it may not have enough cash to weather the storm.

“We are a bit skeptical as to [Mr.] Thains’ claim of no more capital raises given that [Merrill] has burned through most of the capital raised in 2007.  Given that housing fundamental have yet to improve and the state of the consumer has shown signs of stress, we believe future losses are highly probable and further capital raises will be needed.”

In response, Thain assured investors that the worst was over.

But even with the Merrill Lynch song and dance, my money’s on Whitney.