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Worst of Banking Crisis Won't Hit Until 2009, Says Top Risk Analyst

Posted Nov 19, 2008 07:00am EST by Aaron Task in Investing, Recession, Banking
Related: C, JPM, BAC, WFC, XLF, CFR, ^DJI

Christopher Whalen, managing director of Institutional Risk Analytics, was hailed by Fortune as one of the "Prophets of the Credit Crisis" for seeing danger long before it was obvious to most.

But Whalen is no permabear and he does see some signs of hope on the horizon for the financials. The "vast majority" of banks remain healthy, he tells Henry in the accompanying video, and also predicts loan losses will peak in the second quarter of 2009.

Since banking stocks typically rise in anticipation of peak losses, you'd think Whalen would be an eager buyer. Well, not quite. He might not be a permabear but he's far from bullish on the sector, citing:

  • The possibility industry loan losses may remain at those "peak" levels for several quarters.
  • Banks continuing to focus on raising their loan loss provisions (see above) vs. extending credit to customers.
  • The likelihood of rising problem loans in the prime, high-yield, and corporate categories.

While particularly concerned about Citigroup and JPMorgan, as detailed here, Whalen says financial stocks are going to remain a "dead weight" for the major averages well into next year.

(Note: Whalen currently has no position in the banks he and Henry discuss.)

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