Meredith Whitney, once dubbed the “Wall Street prophet” for predicting the financial crisis, is restarting her firm at a time when she predicts a host of banks could disappear again.
Whitney said a host of headwinds, including the U.S. housing market and new banking regulations, will make it increasingly difficult for many regional banks to survive on their own. That would weigh on their share prices and make them attractive takeover targets.
“There are good reasons why investors don’t want to buy bank stocks right now,” Whitney told the FT. “There will be a lot less for the banks.”
Whitney’s eponymous boutique research focuses on bank stocks but also writes feature articles on the economy. Earlier this month, it started offering the service to individual investors for $257 a month. Whitney said she would offer more custom research at a higher fee to a limited number of clients.
Whitney predicts that a wave of consolidation will weed out midsize banks, especially in regions like Texas where the economy continues to grow.
“Regional banks face a lot of headwinds right now,” Whitney said. “It’s just not knowing the type of lending stress they’re going to have and the capital requirements they might face.”
Whitney rose to fame in the aftermath of the financial crisis for her prescient vision of the housing bubble and how it would cause major problems for America’s largest banks.
Her most famous warning came in the fall of 2007, a year before the financial crisis, when Citigroup, the largest US bank, was about to go bankrupt. Citigroup was bailed out in 2008 when then-CEO Chuck Prince departed a few months later. Its stock price plummeted more than 95% over the next two years. Fifteen years later, Citi stock has still not fully recovered.
Since then, Whitney’s other public investment calls have hardly been as prescient. In 2011, she predicted that indebted cities and other local governments, along with rising pension obligations, would cause the municipal bond market to collapse, but that never materialized. Whitney opened a hedge fund in 2013 but closed it about two years later after underperforming.
Whitney sees the financial health of the big banks as generally sound and said they have the financial muscle to cover the cost of the new regulation.
“The big banks are in a very good position,” Whitney said. “They have more than enough deposits, so they won’t be under the same pressure as regional banks.”
She believes that if there is a recession, it will be mild. Since the company restarted, her biggest bullish is the U.S. housing market, which she believes will enter a long-term downturn, but not a collapse.
“The foundation of consumer banking is housing, so I’m not worried about the economy because homeowners now have a lot of wealth in their homes,” Whitney said. “In the near and medium term, things look good.”
Whitney said the U.S. housing market has benefited from a lower leverage ratio than in 2007, when the average U.S. homeowner had a mortgage that was only 30% of the value of their home. That means few homebuyers will find themselves owing more than their home is worth and either forced to sell or foreclosed on. Whitney predicts that U.S. home prices will fall by as much as about 2% to 3% over the next five years.
She is also bullish on commercial real estate. Questioning the productivity of remote work, she believes employers will increasingly ask their employees to return to the office. That would reverse recent declines in downtown office and other property values.
She also thinks the regional banking crisis is over, even if the economy remains unfavorable for many smaller institutions. “Silicon Valley Bank and other failed banks — I see those as unforced errors,” Whitney said. “Banks reported good first-quarter earnings, and the market doesn’t tell you that other banks have made similar mistakes.”
Since suspending her research firm nearly a decade ago, Whitney has held a number of roles at startups, none of which lasted long. Most recently, Whitney joined popular fertility healthcare startup Kindbody in April 2021 as Chief Financial Officer. She stayed in the role for just 11 months, but remained an advisor to the company, which raised another $100 million in funding earlier this year. Whitney declined to say why she left the role after less than a year.
“I stopped writing about banks ten years ago because banks got boring,” Whitney said. “Now I have enough to write about. Banks are fun again.”