Bank Profits Ready to Tumble, Stocks to Fall: Whitney

The US banking system will lose 30 percent more than consensus estimates as shrinking loan portfolios squeeze profits, analyst Meredith Whitney told CNBC.

Meredith Whitney
Meredith Whitney

While increased governmental regulations will restrict the industry somewhat, Whitney said that the decline of up to 20 percent in lending portfolios will enact far more damage on bank balance sheets.

"Your good borrowers don't want to borrow, and your bad borrowers you're trying to kick out of the system," she said. "So on average lending portfolios are down 4 to 20 percent and we think they're going to be down another 10 to 15 percent for all the big banks this year."

Whitney's call comes amid a fairly strong round of financial earnings reports from the banks as well as nearly 80 percent of all companies on the Standard & Poor's 500. Financials comprise about 20 percent of the S&P.

This year could be different, though, as banks have to find another way to make money.

"Big banks made all their money from fixed income currency and commodity trading last year," Whitney said. "It's a very different story this year, so they're not re-equitizing themselves."

Of the banks she rates, Whitney said Bank of America comes in as the "least worst" of the group even as the group as a whole could lose 10 to 15 percent off their share value.

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She said regionals aren't safe anymore and could come under pressure for acquisitions as the year progresses.

"You may start to see some arranged marriages in the regional bank space, and that's not going to be good for equity holders of those regional banks," she said.

As for regulation, she said the final shape of the Washington clampdown on financials is yet to be seen but most certainly will involve an emphasis on less risk.

"They will separate the risk that's on Wall Street from that which is associated with consumer deposits," Whitney said. "It's going to be a tougher environment."