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Meredith Whitney On Consumer Credit

Posted by Precision Debt Relief in Dallas-Fort Worth-Arlington, TX on May 01, 2009

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Intelligent Investing Panel
Meredith Whitney On Consumer Credit
Stephanie Dahle, 04.03.09, 12:00 PM ET

Steve's book is fabulous, by the way. I love the flat tax as well. -Meredith Whitney

Forbes: A little over a month ago, you spoke to JPMorgan Chase's CFO, and he told you that even with more government money, JP wasn't inclined to increase its consumer lending in this environment. Has anything changed since then?

Whitney: Well, what has changed is that the 10-Ks for every bank [have] been filed, and what [they] shows is that net lending across the board is down. So within the credit card base, banks pulled half a trillion dollars from consumers, and originations are down dramatically from 2007. So people pulled in their horns--risk-averse.

What's your outlook for consumer credit issuance and consumer spending for the rest of this year and next?

That it'll be down. We've said from our estimate on what would happen with credit card lending; for example, we think it'll be down by as much as $2 trillion this year. Now, that's from the peak. By mid 2010, it will be $2.7 trillion in total.

Some banks, like Citigroup and Bank Of America, are reporting stronger performance these first few months of the year. Are we making too much of this? Can't anyone make money taking free money from the government and lending against it for interest?

I think it's more complicated than that, but I'd rather not go through that one on a recorded phone call.

Goldman Sachs says it wants to pay off its TARP funds as soon as next month. Did Goldman ever really need the money? What about the money Goldman's received from the AIG bailout?

The two are mutually exclusive. Goldman didn't receive money because AIG was bailed out. It was a business contract that they went into, and AIG made good on its side of the contract. AIG was underfunded, and so it needed the money to settle its debts effectively.

How important is it to be the first to pay back TARP funds?

If you're the bank, important. I don't know that it necessarily matters, but obviously, the sooner you're released from shackles, the sooner you can really focus on running your own business.

What is one misplaced assumption in business today?

That's a thoughtful question. [For] investors or businesses, that any problem can be quickly solved without a long-term plan. And that's held by business leaders as well as government.

What was the best financial lesson you've ever learned?

Something my grandfather taught me: You can't make money if you owe money. Actually, it's a lesson really timely for today. I learn a new lesson every single day.

Who is the greatest financial mind working today?

I think there are a lot great minds, smart about different things. A lot of fantastic management styles that Steve highlights in his book. Al Lafley-- [A.G. Lafley, former chairman at Procter & Gamble and co-author of The Game Changer with Ram Charan] Incredible. There's a lot of very good management out there. There are a lot of great, thoughtful people too.

What is your bold prediction for the future?

I'm not going to give it to you guys. I give it to clients. Sorry!

What has the market taught us about risk and how can we be better prepared to deal with risk in the future?

It'll just take on a different form. So you always think you're prepared for risk--you always think you're prepared, but it comes up in a different costume each time. I think people knew that they were taking on too much leverage, but the environment rewarded that--until it didn't.

Steve's book is fabulous, by the way. I love the flat tax as well.

Article from http://www.forbes.com/2009/04/03/meredith-whitney-credit-intelligent-investing-credit.html?partner=email