<blockquote>"
That means analysts are one of the few independent sources of information left. And the strain of that is beginning to show, through turf wars over who called the financial crisis. This week, consultant Janet Tavakoli, president of Tavakoli Structured Finance, wrote a five-page note to clients titled “Reporting v. PR: Meredith Whitney and AIG,” in which Tavakoli took aim at Whitney’s portrayal as a Wall Street prophet. “When it comes to press coverage of our major financial institutions, the stakes are higher and the issues are not innocuous,” Tavakoli said, adding, “Few specifically and publicly warned of the global financial meltdown in advance—when something could have been done about it—as far as I know, Whitney was not in that number. Warren Buffett, Jeremy Grantham, Jim Rogers, and I (among others) were.”
Tavakoli has written a book titled, “Dear Mr. Buffett,” which used her 2005 lunch meeting with Buffett as a jumping-off point for discussing the global financial meltdown. She is not an analyst, but helps banks settle disputes over structured products, acting as an expert witness or proferring perspective on valuation issues.
...
... The risk to the markets and investors is that, as Wall Street as we knew it erodes, more analysts may not be able to speak as freely.</blockquote>
It’s 2009. Do You Know Where Your Bank Analyst Is?By Heidi N. Moore
March 26, 2009
SourceResearch analysts have always had it fairly tough on Wall Street. For analysts covering banks, it is even harder now to maintain a bearish stance on the future of banking while taking paycheck from big banks.
Some aren’t even trying. Three prominent analysts covering investment banks have left behind big banks to join boutiques: Meredith Whitney started her own firm, Deutsche Bank analyst Michael Mayo is headed to Calyon Securities USA–the U.S. arm of the French bank Calyon–and former Banc of America Securities analyst Michael Hecht just landed at San Francisco boutique investment bank JMP Securities. Another analyst, Richard X. Bove, left one boutique (Ladenberg Thalmann) to join an even smaller one (Rochedale Securities).
All have been bearish on banks for some time. It doesn’t take a stretch of the imagination to realize that even for the most independent-minded analysts, their dire pronouncements on the future of banking threaten to bite the hand that feeds them.
Yet there is no one reason for these moves. Mayo, for one, complained privately that Deutsche Bank limited his ability to speak freely. Whitney isn’t abandoning the idea of an investment bank–her new firm focuses on research, but may well open an investment-banking arm to advise companies on mergers. Bove and Hecht moved to new firms for different reasons.
The moves are part of the changing face of Wall Street. Many of the shifting analysts saw their expertise negated as the firms they covered were either acquired, re-regulated or went out of business: Bear Stearns and Merrill Lynch were acquired, Lehman Brothers Holdings collapsed and its pieces sold to Barclays Capital and Nomura Holding, while Goldman Sachs Group and Morgan Stanley became bank-holding companies. But things might not get a whole lot better for them at the smaller firms. Surviving banks aren’t providing much in the way of forecasts or financial targets, and ratings providers have their own credibility problems.
That means analysts are one of the few independent sources of information left. And the strain of that is beginning to show, through turf wars over who called the financial crisis. This week, consultant Janet Tavakoli, president of Tavakoli Structured Finance,
wrote a five-page note to clients titled “Reporting v. PR: Meredith Whitney and AIG,” in which Tavakoli took aim at Whitney’s portrayal as a Wall Street prophet. “When it comes to press coverage of our major financial institutions, the stakes are higher and the issues are not innocuous,” Tavakoli said, adding, “Few specifically and publicly warned of the global financial meltdown in advance—when something could have been done about it—as far as I know, Whitney was not in that number. Warren Buffett, Jeremy Grantham, Jim Rogers, and I (among others) were.”
Tavakoli has written a book titled, “Dear Mr. Buffett,” which used her 2005 lunch meeting with Buffett as a jumping-off point for discussing the global financial meltdown. She is not an analyst, but helps banks settle disputes over structured products, acting as an expert witness or proferring perspective on valuation issues.
Of course Whitney–who declined to comment to Deal Journal–never billed herself as a prophet, though much of the press has. Even
Fortune Magazine, in this glowing profile in August concluded that Whitney wasn’t a stock-picker, but a good analyst of the larger issues facing banks:
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Whitney’s insights haven’t always translated into lucrative investment picks. Based on the performance of her buy and sell recommendations relative to her industry peer group–what analyst tracker Starmine refers to as an analyst’s “industry excess return”–Whitney’s stock picking ranked 1,205th out of 1,919 equity analysts last year and 919th out of 1,917 through the first half of 2008. That said, evaluating Whitney solely on the timing of her buys and sells misses the point. It’s not just that she’s bearish on the entire banking industry. What makes Whitney so interesting is the brutality of her arguments and the evidence she summons in making them.</blockquote>
For instance, Whitney made a good call in November on the banks, arguing that TARP capital infusions would soon be blown on writedowns. “Overall, we do not believe these capital raises will spur meaningful growth for the industry. We remain cautious on the financial institutions as they continue to face asset price declines and a prolonged weak economic environment,” Whitney wrote.
From the media exposure, Whitney may be the best known or the public face of all banking analysts, but Whitney’s influence does come from her blunt, forceful pronouncements, which often weren’t what bank officials wanted to hear but were well-reasoned and moved the markets. But journalists and investors read many analysts. The risk to the markets and investors is that, as Wall Street as we knew it erodes, more analysts may not be able to speak as freely.