The Analyst Who Rocked Citi

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Meredith Whitney

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Whitney's clients include major hedge funds, such as billionaire Steve Cohen's SAC Capital Partners, Fontana Capital, and Denver Investment Advisors. None of the firms was available for comment. But one client, a portfolio manager who oversees billions in assets, was quick to praise her work. "I think the world of her. She's bold and she nails it," said the manager, who declined to be identified.

Not everyone agreed with Whitney's call on Citi. Jeremy Siegel, finance professor at the Wharton School of the University of Pennsylvania, said it wasn't clear that Citi would have to cut its dividend. He noted that the bank had weathered a financial crisis in the early 1990s without taking such a step.

A Maverick on Wall Street

As a group, sell-side stock analysts have a reputation for being reluctant to call to task the companies they cover. But Whitney has made a career of such calls. She has issued sell ratings on stocks such as Enron, Providian, CIT (CIT) and Capital One (COF), which she downgraded twice during 2006. Her buy calls have been equally surprising. She issued a buy on Goldman Sachs Group (GS) in 2006 when its shares were at $130. The stock soared to $200, and is now trading around $207.

Whitney arrived on Wall Street 16 years ago with a bachelor's degree in history from Brown University. She didn't have an MBA or any formal training in financial analysis, but she landed a job as a junior analyst at Oppenheimer (OPY), covering Enron and other oil and gas companies. In 2001 she got a job with the hedge fund FrontPoint Partners, working with Steve Eisman, a well-regarded financial analyst. "Unlike a lot of sell-side analysts, Meredith is willing to question what companies say," says Eisman.

Whitney returned to the banking world two years ago after a stint as a commentator for Fox News (NWS). She wound up on television almost by accident. Whitney had left FrontPoint to join First Union, which was later acquired by Wachovia (WB). The move allowed her to run her own show, but there were differences and she left. A noncompete agreement kept her out of financial services for three years, during which she worked as a commentator at Fox. Whitney described the differences with First Union as "cultural." Wachovia didn't return a call seeking comment.

At Fox, she met John "Bradshaw" Layfield, a former professional football player and World Wrestling Entertainment (WWE) personality once known as "Death Mask." They were guests on an August, 2003, segment of Fox's Bulls and Bears. They disagreed over the prospects for Citi. Layfield was the bull. "She asked me why you would want to own a financial stock during a time of rising interest rates, and she was right. She humiliated me on national TV," the 6-foot-6, 300-pound Texan said. But friends at Fox set them up by placing them together at a table for eight at a Manhattan restaurant. Everyone else at the table had agreed not to talk to Layfield or Whitney. The ploy worked; they started dating and were married in February, 2005, on a beach in Key West, Fla.

Whitney received several death threats after the Oct. 31 report. She takes such threats in stride, saying "sometimes it's good to know that you are striking a nerve." Layfield, a private investment banker and author of Have More Money Now, says the people who threatened his wife were cowardly. He canceled a trip to Texas so he could see to her safety.

Pride Goeth Before a Fall

Whitney says she is fascinated by the way power is used and misused on Wall Street, adding that so many of the problems in the corporate world—from Enron to Citi—flow from ego. "So much of this is a human story. Hubris is the cause of management mistakes 90% of the time," she says.

Since Whitney issued her report on Citi, Credit Suisse, Morgan Stanley, and Goldman have followed with their own sell ratings, and Citi has lost $50 billion in value. It closed Monday at $30.70, down 3.2% for the day and 47% from its 52-week high of $57. It remains to be seen whether her predictions about Citi's dividend and capital structure will be vindicated. But so far, in the words of one senior investment banker, "the market is betting on her being right."

Rosenbush is a senior writer for BusinessWeek.com in New York.