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Meredith Whitney: I’m a ‘Growth Chaser,’ Not a ‘Doom and Gloomer’

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Star analyst Meredith Whitney kicked off the Investment Management Association’s annual conference on Sunday in Seattle by decrying her reputation as a “doom and gloomer.”

“Like you, I’m a growth chaser,” Whitney appealed to the advisors and investment managers in the audience. “And like you, I get paid to find good investment ideas for my clients.”

Claiming she identifies more with the retail rather than institutional space due to her background at Oppenheimer & Co., she notes, “I’ve been on Wall Street for 20 years. Six years ago, I made my most famous call on the credit crisis. I am not a doom and gloomer.  I am a growth chaser.  The doom and gloom tag drove me crazy.”

Referring to her initial claim to fame, her downgrade of Citibank in 2007, Whitney said, “I made the call with Citigroup when they replaced their CFO. I was invited to a cocktail hour with him. Another analyst said they couldn’t understand Citigroup, it was just too big with too many parts. I thought that was strange to say because figuring out companies like that is our job, so I went back and tried. What I noticed was it was impossible to sustain their earnings, so I wrote it up.”

She did, however, hold it until after the Fed meeting at the time because she didn’t want a potential action by the central bank to cause the call to “blow up in my face.”

“When I did release it, it quickly became the call heard around the world,” she said.

She said after the Citigroup call, she understood where the growth “wasn’t coming from,” and decided to try and find out “where it was coming from.”

“It’s not coming from the coast or the so-called ‘sand states,’” Whitney explained. “It’s coming from the central corridor. Unemployment is also twice as high as it is in the central corridor, and per capita average debt in California is twice that of Texas. With structurally high unemployment, you can’t grow yourself out of debt.”

As a result, the demography of the United States is changing “right before our eyes,” she said, with high tax and debt states on the coast losing out to those in the central corridor.

“Illinois raised taxed a few years ago; the governor of Wisconsin went on TV and held a sign over his head that said “open for business.”

Referring to the “800-pound gorilla in the room,” the moderator noted that Chuck Prince resigned as CEO of Citigroup roughly a week after her downgrade of Citigroup, so she was “obviously aware at that time that her words had power.”

“I’m making sure there are no cameras from ’60 Minutes’ here,” he said. “So what made led you to make the call [about] municipalities?” “It was a statement, not a call,” she clarified. “I would never go on ’60 Minutes’ and make a call. I did a lot of research at the state level and what I found were bad assumptions that were so reminiscent of banks. That year, 26 new governors were elected, and they took a great amount of political risk to try to fix the situation. “

He then asked about some of her favorite picks, to which she answered, “one of my pure-play growth favorites is Discover, a financial services firm outside of Chicago that lends to the central corridor. It’s been one of the best financial services companies in each of the past three years. It’s got everything you want.”

The old levers of the economy no longer work, she concluded, and noted earnings growth will no longer come from banks.

“Regulators won’t let them get bigger through M&A,” she said, “and they are also talking about instituting higher capital requirements.”


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