Meredith is at it again.....
NEW YORK (MarketWatch) -- Investment banks will continue to face pressure on their core businesses, Oppenheimer & Co. analyst Meredith Whitney said Tuesday as she slashed estimates for Merrill Lynch, Lehman Brothers, Morgan Stanley and Goldman Sachs.
Banking giants face an outlook that is "far more bleak than that reflected in the market," Whitney warned in a note to clients.
"With less than three weeks until the end of the fiscal second quarter, the global capital markets activity for the quarter shows continued weakness,'' Whitney wrote.
As a result, she trimmed earnings estimates for the four investment firms by an average of 41% for the second quarter, by nearly 50% for the full year and by 20% for 2009....
...And now, a new problem
In Tuesday's research note, Whitney said banks face a new problem: Many have yet to fully digest the temporary gains they earned as prices for credit-default swaps, or CDSs, rose in the first quarter but subsequently lost when prices fell in the second quarter.
Those losses could be bad news for investors who may have counted on an end in sight after last year's string of multibillion-dollar write-downs. Banks have been forced to write down more than $300 billion on bad bets in the mortgage market after a tanking housing market and global credit crunch made many of those investments virtually worthless....
... "Based upon the action in CDS spreads so far this quarter, we believe the brokers' earnings will face sizable headwinds from the reversal of revenues resulting from the spread narrowing of firms' CDS spreads," Whitney said.
She added that the effects of the global credit crisis will continue to reverberate throughout the market, making it unlikely banks will see significant gains anytime soon. That could put pressure on share prices and spell trouble for investors, she said....
... She said in a Bloomberg Television interview on Monday that Vikram Pandit, Citigroup's chief executive, faces in a uphill battle in returning the company to a stable position.
"I think it's an impossible feat," Whitney said in the interview. "They don't have the revenue power, they don't have the earnings power in so many of their businesses."
Referring to the famed physicist, she added: "Even Stephen Hawking could not pull this off."