Meredith Whitney: Banks at a turning point


More analysts are coming forward with breathtakingly bullish predictions that the banking industry is entering a long-term virtuous cycle that makes them must-own right now.

Analyst Richard Bove made his case recently, and now it's Meredith Whitney's turn. She's less bullish in general, but she does think the industry's at an inflection point.

In the Financial Times, she writes that, "This year will mark an important turning point as individual banks begin to outperform the pack dramatically after almost five years of high correlation. There will be far fewer macroeconomic tailwinds. Banks will have to distinguish themselves through back-to-basics operating results. This will mean a welcome return for the sort of basic analysis by investors they apply to other companies."

As the economy improves, the industry will hopefully revert to a market in which individual banks will be rewarded on their specific merits. While some would suggest buying the broad industry right now, she would be a stock picker. 

"We will soon find out if US bank chiefs are as good as their big pay cheques suggest. Some bosses have been whining about tighter regulations, higher capital standards and the broader economy, while the better ones are getting on with running their businesses…It is time that bank chief executives need to step up and show they really know how to run a business as effective operators all by themselves."

She thinks that there is still some cost-cutting to be done. There will be some winners.

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