Meredith Whitney: Banks Not Facing the Music

Meredith Whitney, Managing Director, CIBC Oppenheimer has submitted an op-ed to FT.com, America's Banks Need to Hold a Yard Sale, in which she opines that America's banks are not acting quickly enough to liquidate assets in an orderly fashion in order to raise cash for Tier 1 reserves.

Here are a few excerpts:

... it appears as if US banks are setting out to make some of the same mistakes of the past 18 months all over again.

When the we find ourselves in duress, we have to sell stuff. Why should we support the behaviour? Where is our bailout? The banks have had nothing but time, but they do not seem to be facing the music.

Now, when the average taxpayer finds him or herself overextended, he or she is forced to backtrack and, in situations of duress, sell stuff (otherwise known as a yard sale). In these cases, selling a set of snow skis for $15 or a prized record collection for $10 is not desirable but is necessary. Why should the US taxpayer be forced to fund behaviour that he or she would never have the luxury of indulging in?

Whitney posits that what she is indeed writing about is the need for the banks to get on with the obvious need of selling assets, their "crown jewels," in order to get back on side, and provide relief back to the taxpayer.

The fact is that there is money on the sidelines looking for opportunities to invest. One constant question I get from investors, who need somewhere to put their money, is: if I had to own something, what would it be? I am not very helpful to them at the moment as my answer is that I would own nothing. I do tell them that I believe that later in the year there will be fabulous opportunities to invest in new combinations of businesses that are currently “off the menu” to individuals. What I mean by this is that the system will eventually force disposals of assets: here I am just arguing that we need to get to it sooner rather than later.

Whitney recently shared her views last week on CNBC, that the banks would be needing more funding which would take us into 2010. To watch the video, click the image.

“Banks may need another round of fresh capital this year, says Meredith Whitney, Oppenheimer & Co. director of research.”

So far, Whitney has yet to be proven wrong about the systemic problems, and the banks are dragging their feet about what needs to be done in order to restore stability to the financial system. The longer they take, the harder it gets to reverse the damage.