Banking analyst Meredith Whitney says her profit expectations for big banks are 30 percent below Wall Street expectations for a very basic reason: asset declines are everywhere.
“On average, lending portfolios are down four-to-20 percent, and we think they’re going to be down another 10-to-15 percent for all the big banks this year,” Whitney told CNBC.
“Your good borrowers don’t want to borrow, and your bad borrowers, you’re trying to kick out of the system.”
Higher capital levels mandated by impending banking law reforms are a given, Whitney says, which means lower returns for the banks.
“The big banks made all their income on fixed income, currency and commodities trading last year,” Whitney notes. “It’ a very different story this year.”
“The government taking the punch bowl away is going to hurt profits for these guys.”
Whitney expects that the proprietary-trading regulatory changes proposed for banks by the Obama administration will separate the risk that’s on Wall Street from consumer deposits. “It’s going to be a tougher environment.”
Federal Reserve Bank of New York President William Dudley says he currently expects that the economy will keep expanding, but at a somewhat slower growth rate than during the second half of 2009 as the temporary boost from the inventory cycle fades and the effects of the stimulus bill gradually weaken, The Wall Street Journal reports.
"While the U.S. economy is growing, unemployment remains unacceptably high and certain impediments could restrict growth in the near term," Dudley said, flagging financial sector conditions as one notable headwind for hiring.
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