The largest U.S. banks will struggle to match first-quarter earnings over the next couple of periods as one-time boosts disappear and investment banking remains “anemic,” analyst Meredith Whitney said.
First-quarter results were helped by asset appreciation driven by the European Central Bank’s lending program and by increased mortgage refinancing on the back of the U.S. government’s Home Affordable Refinance Program, Whitney, chief executive officer of Meredith Whitney Advisory Group LLC, said today in an interview with Bloomberg Radio’s “Bloomberg Surveillance” with Tom Keene and Ken Prewitt.
“A lot of one-time issues inflated bank earnings,” Whitney said. “A lot of people thought bank earnings were fantastic. Once you get to second-quarter results, third-quarter results, it will be much more difficult for these banks to look good.”
The month of April was “very dismal” for banks and many firms will have to follow Bank of America (BAC:US) Corp. in laying off more senior investment bankers, she said. Whitney, 42, has previously said lenders may cut 100,000 jobs this year. Banks that aren’t involved in capital markets businesses will grow faster than those that are, she said.
Mergers and acquisitions fell 29 percent and global equity offerings dropped 30 percent in the first four months of 2012 compared with a year earlier, according to data compiled by Bloomberg. Corporate debt offerings in April fell 26 percent from a year ago, according to the data.
“The core business of investment banking trends, even of equity capital markets trends and certainly of debt capital market trends, is anemic,” and will require “significant” resizing, Whitney said.
Whitney gained prominence after her 2007 prediction that Citigroup Inc. would cut its dividend because of mortgage- related losses proved correct in 2008. Her recommendation to sell bank stocks before the credit crisis hit with full force propelled her to fame.
Her December 2010 call on municipal bonds in which she said “50 to 100 sizable defaults” would occur, helped spark the withdrawal of $23 billion from tax-exempt municipal-bond funds from January 2011 through April 2011, according to Investment Company Institute data. The prediction has yet to be borne out.
To contact the reporters on this story: Michael J. Moore in New York at email@example.com; Tom Keene in New York at firstname.lastname@example.org
To contact the editor responsible for this story: David Scheer at email@example.com