CIBC World Markets analyst Meredith Whitney
Duncan Mavin, Financial Post
Published: Friday, November 02, 2007
CIBC World Markets analyst Meredith Whitney, an outspoken television pundit who is married to a professional wrestler, delivered a body slam to the U.S. banking sector this week that has sent stocks reeling in markets around the world.
The champion stock-picker even talks a bit like Rowdy Roddy Piper.
"No one had the moxie to put in print, what I put in print," Ms. Whitney said yesterday.
She had earlier hit Citigroup with a downgrade when it was already hurting from weak profits.
"Is Citigroup's dividend safe?" she demanded in a tough report that followed a 57% drop in third-quarter earnings at the world's largest bank.
Ms. Whitney said Citigroup, one of the world's largest banks, is US$30-billion short of enough capital to keep up with payments to shareholders and its plans for growth during the current credit crunch.
Bank stocks fell sharply. Her report triggered the steepest tumble in Citigroup shares since September 2002, and it's not done falling yet, according to Ms. Whitney.
U.S. stocks were dragged down, with the Standard & Poor's 500 Index losing 2.6% on Thursday, destroying $369-billion in market value.
In Canada and elsewhere, bank stocks also fell. Canadian Imperial Bank of Commerce, Ms. Whitney's own employer, has seen 4% slashed off its stock price since her report was issued.
The CIBC analyst said yesterday that she has been inundated with attention from media and investors since making the call in a report issued in New York on Wednesday evening.
A spokesman for CIBC in Toronto said the bank has also had a high number of requests to get in touch with Ms. Whitney or to see her report.
"It's a very controversial call despite being a very straightforward call," Ms. Whitney said in an interview.
"I took this extremely seriously. The report is very thorough. But in my 14 years as an analyst this is the most straightforward call that I've made. It's black and white."
Despite her assuredness, the downgrade is widely seen as bold move. But as a regular guest on Fox News, Ms. Whitney has made a name for herself with forthright views.
On a Fox panel discussing the U.S. sub-prime mortgage crisis in July, she said, "I don't feel sorry for the teacher who's making $40,000 a year who squeezed herself into a $2-million dollar home and can't afford it."
On the same show, the 37-year old analyst said, "You have to have creative destruction to have a capitalist society. You have to let people fail."
Those words could also now be ringing in the ears of Citigroup chief executive Charles Prince, whom Ms. Whitney blames for the bank's declining fortunes.
"There's no question he has to leave,'' said the New York-based analyst.
Ms. Whitney is currently number two in Forbes magazine's ranking of capital markets analysts. She graduated with honors from Brown University in Providence, Rhode Island, and married John "Bradshaw" Layfield in Key West in 2005.
Mr. Layfield is a former World Wrestling Entertainment Inc. champion and author of "Have More Money Now: A Common Sense Approach to Financial Management."
Known to his fans as JBL, Mr. Layfield apparently models his character after J.R. Ewing from the television show Dallas. His signature wrestling move is the 'Clothesline From Hell,' and his WWE Smack Down website profile warns, "Never challenge John Bradshaw Layfield to a street fight -- especially on Wall Street, or when he's offering valuable investment pointers to help bulk up your portfolio."
Like his wife, Mr. Layfield is a regular contributor to Fox News.
Ms. Whitney said her twenty-three page report on Citigroup which downgraded the bank from 'sector perform' to 'sector underperform' has been vindicated by an 11% drop in the company's stock price in the past two days.
"I had a lot of support [before issuing the report] from my firm and I've got a good track record. I lay the case out, they think about it and they trust me."
Analysts in the U.S. tend to be more aggressive with their ratings than their counterparts here in Canada, said Mario Mendonca, financial services analyst at Genuity Capital Markets in Toronto.
It is very unusual for Canadian bank analysts to give bank stocks a "sell" recommendation, though Mr. Mendonca was among a handful of his peers who did downgrade Bank of Montreal earlier this year. When he switched his recommendation on the stock to "sell" from "hold" based, the reaction to his downgrade was mixed.
"If you don't downgrade you are criticized for being too soft on the banks and if you do downgrade then people say you are wrong and missing the point of bank stocks," he said.
Meanwhile some observers in the U.S. have reacted in opposition to Ms. Whitney's report.
David Hilder, an analyst at Bear Stearns & Co., wrote in a note that "concerns about Citigroup's capital position and dividend policy raised by a competitor are over-stated."
Mr. Hilder, based in New York, maintained his 'outperform' rating on Citigroup and said the shares may climb to US$58 by the end of next year.
Anton Schutz, who oversees US$270-million as president of Mendon Capital Advisors in Rochester, New York, said the bank has too much cash to cut its payout.
"I don't believe that to be true, that they will need to cut the dividend," said Mr. Schutz, who owns Citigroup shares and said he has been buying as prices declined. "There's no doubt that there's a lot of uncertainty here, but overall this company generates a ton of capital and can certainly weather a storm."
Financial Post with files from Bloomberg News