Chapter 18

MEREDITH WHITNEY

Bank analyst, predicted mortgage problems and financial fallout

In 2009, on Time magazine’s list of 100 “World’s Most Influential People”

One of the Wall Street Journal’s 50 Women to Watch

 

 

 

 

 

Meredith Whitney is disarming. She looks you straight in the eye and states her points so clearly and simply that the content is emphasized and the style of the delivery is minimized. You keep waiting for her to add a huge inflection to emphasize a point, something to match the impact of what she’s saying. But with Meredith, it’s the content that matters, not the show.

Which is not to say her words don’t pack a punch; they do. Like when she made “the call” on October 31, 2007. As a bank analyst at Oppenheimer she predicted that Citigroup would raise capital, sell assets, or cut its dividend. The company’s stock plummeted and the financial crisis ensued. It was almost as if she was the only analyst who had the guts to say, as the never-ending parade of financial institutions wreaked havoc on Wall Street and Main Street, “The emperor has no clothes!”

Her stock soared.

The New York Post has called her one of the 50 Most Powerful Women in New York City. In 2007 she was listed as the second best stock picker in the capital market industry on Forbes.com’s “The Best Analysts: Stock Pickers.” Her extremely bearish view on banks landed her on the cover of the August 18, 2008, issue of Fortune magazine. In October 2008, she was ranked as one of the Fortune 500’s “50 Most Powerful Women in Business.” In 2008 she was named CNBC’s “Power Player of the Year.”

Impressed? Forget all that. Let me tell you what makes Meredith Whitney special.

I had the pleasure of working with Meredith from time to time when I was anchoring on a cable network. I won’t tell you which network it was, but it rhymes with “docs.”

At the time, the Iraq war was going on, and as a news anchor I would do a lot of interviews with experts on the Middle East. At some point in our shows, Meredith would come on and talk about what was going on in the business world. She was excellent: affable, well informed, and an easy interview.

One day in the greenroom before a show we were talking about various issues going on in the world, and she asked me if there were a couple of books I would recommend on the Middle East.

Think about that. Here she was, a Brown-educated woman who had worked at Oppenheimer and had been the head of financial institution research at Wachovia. She was a television regular on the major cable networks, someone who would soon return to Oppenheimer to cover banks and brokerages. She knew more about banks and assessing the strength or weakness of a balance sheet or business endeavor than I would ever know.

Why does she need to know about the Middle East?

Because she’s curious. Because she wants to understand something better. Because she’s willing to say, even out loud and in public, “I don’t know enough about this” in order to become better informed about it.

That is somebody born to be an analyst. More than that, this is someone you can trust.

And really, isn’t that what doomed Wall Street—a violation of trust?

It has been said that Meredith Whitney can move the markets. That kind of power can come and go. But she has established that whatever her analysis, she calls them as she sees them. You can trust her. That’s why she can look you right in the eye.

“As you go through your career,” Meredith tells me, “you get a lot more confidence in your gut—because you are effectively who you are. So once you allow your personality to truly come out, then I think you can really excel at your job.”

That’s a lesson that she learned by following her gut, even when it was hard to do.

Meredith Whitney’s Best Mistake, in Her Own Words

At 28 years old I was offered the job to build and run the financial institutions research effort at First Union, which became Wachovia. I was the youngest person on the Street to be offered to do that. Moving into the role at 28 was daunting. Very few of my friends had that serious a job. It was hard for many reasons, but I knew it was the right thing to do at the time.

I was there from fall of 1998 to May of 2002. During that time, I did what I set out to do, which was to build a financial institutions practice. I really called the financials right—bullish at the right time, which was the break after the dot-com bust in March of 2001. I went very bullish on the financials with the idea that so many stocks were getting discounted because of their lack of cash flow earnings, financials with strong cash flows should therefore garner a premium multiple and capital flows. I believed that with a lot of the credit card names, and other companies that had strong cash flow, earnings would outperform—and they did.

I got progressively bearish in early 2002, which was the right call.

So all that time I was very pleased with the progress I was making professionally, but I didn’t get the type of feedback or response that I wanted from management. I was passed over for managing director in 2001. It hurt my feelings—I don’t mind saying that—because I was such a strong producer. I was one of their top-producing analysts, if not the top, in the department.

The first time it happened I was ready to quit on the spot. But while I was in the process of quitting, they offered a third year on my two-year contract, for more money. I was very uncertain about it, but it was right after the dot-com crash—things were getting tougher and I was advised by many to take the safe route. So I took the deal.

But I just didn’t like the place anymore—they hadn’t given me a full vote of confidence. It wasn’t about the money. I always expected to be one of those happy employees of the month types! All I wanted was acknowledgment.

So I went through a year, got paid, and—wasn’t promoted again! At that point I was heartbroken to work for a place that wasn’t acknowledging me. So I ended up quitting.

This was a mistake in this sense: By quitting, I could get my pay that was in the form of restricted stock, but since part of my contract also included forgivable loans, I actually had to pay the firm to leave. Then there was the idea, oh, if you leave Wall Street, are you ever going to get another job? And I had to sign a three-year noncompete agreement to get out of my deal with them. So it may have looked like a mistake, but I left the position based on my gut.

And it was the greatest mistake I ever made!

I ended up taking two and a half years away from the business, although I hated every minute of it in the sense that I’m a worker—I can get a thousand things done in a day if I’m chockablock busy, but if I have too much time on my hands I’m significantly less productive. Not working drives me crazy. Plus, it took me out of the business at a time that the market was starting to rally, in 2003.

But during that time I read a ton, I traveled—I got perspective—and most importantly I met my husband. I don’t think that as grizzled as I was, working at the pace I was working, I would have had the chance to slow down enough and meet someone.

So for me, it was the best mistake I ever made, because being out of the system, I was even more independent when I came back. Being with my husband left me even more independent because his life was so different. I’d go home and Wall Street wasn’t the center of the universe.

When I tried to get back into the workforce, everyone assumed I must have been fired. And it couldn’t have been further from the case. The day after I left I was named one of the Wall Street Journal’s top stock pickers in my category. At the time I was actually leaving at the top of my career!

So coming back into the business, I had to start at the bottom again. Three years is a long time to be away from the business, so I had to reestablish myself from scratch. But I had over a decade’s worth of experience on the Street, so I could be quick and out-maneuver people.

In January or February of 2006, I went hyper bullish on the brokers, which was a contrarian position. I think Goldman Sachs was at $140 and I put a $190 price target on it—people thought I was crazy—and the stock ended up over $200 that year.

People had no, or low, expectations of me, so I was below their radar until all of a sudden I wasn’t. And meanwhile I had so much more experience than so much of my competition, but I had been away—so it was perfect because you always want to be underestimated.

I had to work really hard to establish myself, and what I brought was an unorthodox, unconventional approach to research that was unique. And that was all my gut. I let my gut drive me with so much of my research and use the data to prove or disprove my gut. I never expect things to be the same forever.

Having success by following your gut gives you confidence to really trust it.

But then I left CIBC because the culture wasn’t what I was looking for. So my gut was that I should go start one that is reflective of that. I’ve only been with two firms in my career. Well, three actually. I’ll be with this one [Meredith Whitney Advisory Group, LLC] for the duration!

About Meredith Whitney

Meredith Whitney is the CEO of Meredith Whitney Advisory Group, LLC, a macro and strategy-driven investment research firm. Well followed for her core research, Ms. Whitney and her team also focus on a broad section of financials, including large, small, and midsize banks, brokers, and independent commercial and consumer finance companies.

Prior to founding Meredith Whitney Advisory Group, Ms. Whitney was a managing director and senior financial institutions analyst for Oppenheimer & Company, Inc. Throughout her tenure at Oppenheimer, she was most noted for her research on the ultimate decline in home prices, the future of the U.S. mortgage industry, and the consumer lending market, including specific focus on the credit card industry.

In 2007, she wrote prolifically on the threats surrounding the weighted influence of the rating agencies on regulatory capital determinants and the risks of the monoline insurers on financial institutions. In 2006, she presented to the Federal Deposit Insurance Corporation (FDIC) on the U.S. consumer and the risks in the subprime market.

Previously, Ms. Whitney worked as a financial analyst at Wachovia Securities, CIBC World Markets, and Oppenheimer.

In 2009, Ms. Whitney was named as one of Time magazine’s list of 100 “World’s Most Influential People” and was ranked the #1 investment analyst in her category by the Wall Street Journal. Also in 2009, she was named one of Fortune’s Top 50 Most Powerful Women for the second consecutive year, and Crain’s 40 under 40. In 2008, she was named in the Wall Street Journal’s 50 Women to Watch and Smart Money’s Power 30. She was also ranked in Institutional Investor’s 2008 All-American Research Team. Ms. Whitney graduated with honors from Brown University. She currently serves on the board of trustees of the Lawrenceville School.