Oppenheimer's Meredith Whitney is out downgrading Wachovia (NYSE:WB) to Underperform noting that as more news about WB comes out, they are increasingly convinced that the outlook is bleak for equity shareholders. WB has said that it's in the process of "enhancing the capital efficiency of the balance sheet" and "reducing mortgage exposure."
Firm estimates its mortgage portfolio will decline by 9% sequentially and total on-balance sheet loans will decline by at least 5% by year-end. The problem is the "denominator effect"; the loss numerator grows while the asset denominator declines, resulting in spiking loss ratios, lower assets, and lower net interest income, at least 50% of its earnings. In this very real scenario, expenses simply can not come down fast enough, seriously jeopardizing WB's ability to grow earnings.
Notablecalls: Looks like Meredith has given WB stock the proverbial kiss of death. I expect the stock to be down to the tune of -15& to -20% today (or possibly more). Anything above $8.50-$9 level is an Actionable Shorting opportunity this AM.
Firm estimates its mortgage portfolio will decline by 9% sequentially and total on-balance sheet loans will decline by at least 5% by year-end. The problem is the "denominator effect"; the loss numerator grows while the asset denominator declines, resulting in spiking loss ratios, lower assets, and lower net interest income, at least 50% of its earnings. In this very real scenario, expenses simply can not come down fast enough, seriously jeopardizing WB's ability to grow earnings.
Notablecalls: Looks like Meredith has given WB stock the proverbial kiss of death. I expect the stock to be down to the tune of -15& to -20% today (or possibly more). Anything above $8.50-$9 level is an Actionable Shorting opportunity this AM.
3 comments:
This is Stupid.
Read this FDIC statement about the IndyMac takeover. The FDIC is giving 50 cents on the dollar for deposits over $100K, with no promise of recovery of any more money. Not to mention the onerous paperwork. This is going to cause a major exodus of large depositors from the at-risk banks, leading to insolvency. Goodbye WB, WM, etc.
http://www.fdic.gov/bank/individual/failed/indymac_q_and_a.html#Over%20
Gold is going up. Where would YOU put your money if you couldn't trust the bank?
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