Investing to Wealth

Filed under: Citigroup Inc. (C), Financial Crisis

Oppenheimer analyst Meredith Whitney -- one of the handful of people to predict the current mess -- says that allowing banks to move "toxic" mortgages off their balance sheets is only part of the solution to the current mess.

Ms. Whitney told Fortune that a "bad bank" plan would help banks improve their balances sheets but that the more serious problems would still be there: The declining economy will cause an ever-increasing percentage of good assets to go bad while simultaneously killing demand for the other services banks offer.

Whitney's solution? The banks need to sell the good stuff and shrink: "That's what people like you and me, what taxpayers have to do when we are in financial distress. We have to sell whatever it is we can, which is almost always our best assets, and deal with it. We can't just sell what we want to, which would of course be our bad stuff."

Whitney says that there is a buyer for anything at the right price and that the government can assist well-capitalized banks and private equity firms by providing financing. Citigroup (NYSE: C) is in the process of following that model with the sale of Smith Barney. Other banks will have to follow.

Permalink | Email this | Linking Blogs | Comments

Filed under: Citigroup Inc. (C), Financial Crisis

Oppenheimer analyst Meredith Whitney -- one of the handful of people to predict the current mess -- says that allowing banks to move "toxic" mortgages off their balance sheets is only part of the solution to the current mess.

Ms. Whitney told Fortune that a "bad bank" plan would help banks improve their balances sheets but that the more serious problems would still be there: The declining economy will cause an ever-increasing percentage of good assets to go bad while simultaneously killing demand for the other services banks offer.

Whitney's solution? The banks need to sell the good stuff and shrink: "That's what people like you and me, what taxpayers have to do when we are in financial distress. We have to sell whatever it is we can, which is almost always our best assets, and deal with it. We can't just sell what we want to, which would of course be our bad stuff."

Whitney says that there is a buyer for anything at the right price and that the government can assist well-capitalized banks and private equity firms by providing financing. Citigroup (NYSE: C) is in the process of following that model with the sale of Smith Barney. Other banks will have to follow.

Permalink | Email this | Linking Blogs | Comments