Analyst Whitney Cautious on Banks Despite US Plan

The U.S. government plan to inject $250 billion into financial institutions is not an "out of the woods" move but rather one large step in the right direction to restore some liquidity to badly beaten down financial markets, prominent banking analyst Meredith Whitney said.

She, however, maintained her cautious view on banks.

"Tuesday's move by the Fed, Treasury, and FDIC is clearly a move in the right direction for the U.S. markets; however, it is not such a panacea solution that we change our cautious view on the bank stocks," she wrote in a note to clients.

"...We are at least several quarters away from stabilizing fundamentals," she said.

The analyst said her main concerns remain credit and earnings power, noting that her 2008 and 2009 estimates on financial institutions were below consensus by 32 percent and 74 percent, respectively.

"We believe credit costs will continue to surprise on the upside and revenues will begin to surprise on the downside as companies will be forced make money off of lower asset bases," she said.

Whitney also believes that at least a meaningful portion of this infused capital will be directed toward building reserves rather than asset growth.

The United States ushered in a new era in banking on Tuesday with plans to take equity stakes totaling up to $250 billion in financial institutions, an incursion into the private sector that U.S. officials called a regrettable last resort.

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