Subprime collapse boosts the careers of some analysts

Posted Feb 18th 2008 9:30AM by Zac Bissonnette
Filed under: Analyst Reports, Citigroup Inc. (C), Merrill Lynch (MER)

While nearly all of the top investment banks took a big hit from problems in the housing and lending industries, a handful of prescient analysts have seen their careers bolstered [subscription required] by the carnage. Goldman Sachs analyst William Tanona and Oppenheimer's Meredith Whitney have gained some notoriety for their bearish calls on Merrill Lynch (NYSE: MER) and Citigroup (NYSE: C), respectively.

Most interesting to me is the case with Citigroup's Prashant Bhatia who predicted E*Trade's (NASDAQ: ETFC) subprime woes could cause banking customers to withdraw deposits. E*Trade's acting CEO Jarrett Lilien fired back, calling Bhatia's comments reckless.

Bhatia told the Wall Street Journal that "You can go back over time and look at what we have written and what has taken place and be the judge of it ... I don't listen to what management says."

It's a rare analyst who doesn't listen to what management says, but I think there's a lot to it. Executives are nearly always optimistic, at least publicly, about their companies' futures, and investors looking for red flags will find little in the way of help from them. When was the last time you tuned into a conference call to hear the CEO say "We're messing up badly, and we expect to continue to mess up badly in the future. If I can get a decent severance package, I'll be on the next plane back to the Hamptons?"

Letting the numbers do the talking -- specifically those contained in SEC filings -- and first hand research (talking to customers) and reading trade journals/websites that aren't viewed by most investors is a more likely path to success than listening to the wisdom of ever-bullish executives.

Tags: analysts, banks, c, etfc, housing, mer, subprime

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Reader Comments (Page 1 of 1)

2-18-2008 @ 10:55AM

Kevin said...

All Citibank had to do was look at their books then look at Etrade and they realized, "Hey they are doing the same thing we are! I bet they will lose money like we currently are." Wow such insight.

2-18-2008 @ 2:50PM

Jeremy Elliott said...

In the case of E*Trade, the whole issue with Bhatia revolves around the flight of some odd 15% of E*Trade's customers immediately after Bhatia incorrectly forecasted bankruptcy and collapse. We do have freedom of speech, but you still can't stand up in a crowded theater and shout "Fire" when there isn't one and not be held responsible for the hysteria-induced injuries.

2-19-2008 @ 1:39PM

Americas Watchdog said...

Great Blog Zac;

Its frustrating being the lone voice in the wilderness. We called the US real estate market "a train wreck waiting to happen that would put at risk the financial future of our nation", back in June of 2005 (CNN/Money). Few listened.

Now there is that much bigger problem. There are a great number of US pension funds in deep soup, because they purchased MBS's from a greedy investment banker. (We doubt the investment banker's analyst will mention it)

The problem-----------the fund managers look like fools...........so they don't want to mention the problem either. A kind of like, "honey do you recall that convention I went to in Las Vegas, I now seem to have some problems". Most guys would not want to admit it...............they'd just say "honey you seem to have VD, you didn't get it from me".

As we go through what Investment Banker sold what pension fund what MBS portfolio.............all that we can tell you its so bad that if people knew, they probably would convert their money to gold & bury it in the back yard.

Today Wall Street is excited because Wal Mart beat the Street by $0.01. Big deal! There really are a whole bunch of reasons to be more than a little concerned right now.

Just a heads up from someone who watches this as close as can be.