Analyst Meredith Whitney sees "little hope" from bailout plan
By Tenzin Pema
BANGALORE, Sept 23 (Reuters) - The credit crisis that began last summer has intensified so much that any U.S. government bailout plan has "little hope" of improving core fundamentals over the near and medium term, said analyst Meredith Whitney.
The Oppenheimer & Co analyst cut her outlook for U.S. banks and forecast further dividend cuts and capital raises at banks. She projected a quarterly loss for Citigroup Inc (C.N: Quote, Profile, Research, Stock Buzz).
"Since the onset of the credit crisis, over $2 trillion less liquidity has flown through the U.S. domestic capital markets than during...a year prior," Whitney said.
"With that much less available capital, both consumers and corporations have and will spend less," she added.
As the consumer comes under more pressure in the difficult economy, credit card debt may grow, Whitney wrote in a note to clients.
Whitney, however, noted that tighter credit standards and credit line reductions have already strained more consumers into defaulting across the spectrum of lending products.
"Credit market disruption has had underappreciated consequences on the economy... what started last summer has accelerated and intensified so much so that we believe any government bailout plan has little hope of improving core fundamentals over the near and medium term," Whitney said.
The Bush administration has proposed a $700 billion rescue fund to absorb impaired credits that have clogged financial markets and brought to the brink of insolvency one major financial institution after another.
On Tuesday, U.S. Federal Reserve Chairman Ben Bernanke and Treasury Secretary Henry Paulson urged Congress to act swiftly on the proposed bailout of the financial system and warned of dire consequences if they delay.
ECONOMIC OUTLOOK
Oppenheimer's Whitney expects the country's GDP to take a hit from likely moves by state governments to cut costs.
Given that over 12 percent of the U.S. GDP is driven by state and local government spending, and with many key states' 2009 budgets being under-funded, governments will be forced to cut costs and this will weigh significantly on GDP, she said.
Whitney said home prices were not close to bottoming and expects prices to ultimately be at least 25 percent lower from current levels. She also sees further declines in homeownership rate.
The unemployment rate, which is up over 40 percent year-on-year in key states, is "headed materially higher," Whitney said.
reuters.com |
