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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

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.)

54 Comments

JoshS
JoshS - Wednesday November 19, 2008 07:30AM EST

The worst is not over, but there may be a respit for awhile.

Yahoo! Finance User
Yahoo! Finance User - Wednesday November 19, 2008 08:00AM EST

Again repeat performance Prophet of the doom and gloom........Anymore like that is too much............Too much means bias.......

brenda
brenda - Wednesday November 19, 2008 08:10AM EST

Not yet, ... The holiday shopping season will make or break some more. And as more companies continue to slash jobs.... And will the greedy SOB's who created this mess by the gambling approach to "Let's sell houses and give out credit cards with loan shark clauses" that backfired. And these deals were happening all the while that the financial sector was justifying the outsourcing of American jobs. THEY WERE AWARE OF THE POSSIBILITIES!!!!!!!!!! And hasn't any of last years bonus money been confiscated as would be done in any other fraud case? The AUTO industry?!!!!! YOU HAD OVER 30 YEARS TO PRODUCE CARS THAT WOULD EFFECTIVELY COMPETE WITH JAPANESE MODELS. YOU ALL BUILT SUV's AND TRUCKS INSTEAD. I think that this would be called stupid. Let the CEO's donate the years of undeserved bonuses and inflated pay packages back into the companies that were trashed by their inept policies. Shouldn't the leadership portion of society be expected to at least maintain the same standards of intelligence and common sense as is expected of JOE SCHMOE AMERICA? What's happening now was an inevibility of years of mismanagement and buying into the hype of being THE SUPERPOWER. We need some tough love applied here. Let them squirm. NECESSITY IS THE MOTHER OF INVENTION. CONFISCATE THE MISAPPROPRIATED BONUS MONEY.

JetMan
JetMan - Wednesday November 19, 2008 08:32AM EST

Wouldn't the gov't -- once it takes its ownership in the banks -- demand the cessation of dividends? If so, is this already built into the share price of, say, BofA?

Yahoo! Finance User
Yahoo! Finance User - Wednesday November 19, 2008 08:47AM EST

No snap back for a year or more, more drops ahead or holding pattern for awhile.

Yahoo! Finance User
Yahoo! Finance User - Wednesday November 19, 2008 08:48AM EST

No snap back for a year or more, more drops ahead or holding pattern for awhile.

Elvis
Elvis - Wednesday November 19, 2008 08:49AM EST

All this from an analyst who was fined $4 million and banned for life from the securities industry. Gee...thanks, Henry.

taopraxis
taopraxis - Wednesday November 19, 2008 08:54AM EST

Where is the government going to get all the money it is using to buy up private business interests? Print it? Who is going to bail out the states as their revenues go over the falls? How is the working class going to resume bidding up asset prices when prices are artificially high relative to after-tax income? Government overhead and interference in the markets is going to collapse the system. A depression is already baked in for next year. Bailouts are only cover up the problem. TARP is aptly named. The true losses are many times what has been revealed as the LEH fiasco made all too obvious. What a disaster!

Defending Champ
Defending Champ - Wednesday November 19, 2008 09:01AM EST

Speaking of "Dead Weight", Henry Blodget is the last guy that any of you should be listening to for financial advice or commentary. This CROOK (Blodget) swindled investors out of millions of dollars in the late 1990's while making bogus tech stock recommendations. Now the public is listening to him again? Give me a break, this clown should be in prison. In 2002, then New York State Attorney General Eliot Spitzer, published Merrill Lynch e-mails in which Blodget allegedly gave assessments about stocks, which conflicted with what was publicly published. In 2003, he was charged with civil securities fraud by the U.S. Securities and Exchange Commission. He settled without admitting or denying the allegations and was subsequently banned from the securities industry for life. He paid a $2 million fine and $2 million disgorgement but kept millions more he earned in fees while promoting investments in stocks which failed.

M.
M. - Wednesday November 19, 2008 09:02AM EST

blah, blah, blah,,,,I have absolutely no idea how it can be that the majority of you who read this are living with your head in the sand. Look at a graph of the DOW averages going back to the early eighties and you'll see that at one point it was nearly a vertical line. What goes up MUST go down. 94.6% of consumers are in debt up to their ears with only about 8.5% of them standing a chance at coming out EVER ! The first # will be a 6 before it's a 10 when we look at Dow averages. Period. There's no stopping this with 700B, not even with 3 times that. By the time we get this sorted out, the disparity in wealth will look like an unimaginable bad dream, and if you choose to ignore what is already in the process of happening, then reap what you sow. Our economy is a snowball rolling down hill, gaining size and speed. Get out of the way!

M.
M. - Wednesday November 19, 2008 09:02AM EST

blah, blah, blah,,,,I have absolutely no idea how it can be that the majority of you who read this are living with your head in the sand. Look at a graph of the DOW averages going back to the early eighties and you'll see that at one point it was nearly a vertical line. What goes up MUST go down. 94.6% of consumers are in debt up to their ears with only about 8.5% of them standing a chance at coming out EVER ! The first # will be a 6 before it's a 10 when we look at Dow averages. Period. There's no stopping this with 700B, not even with 3 times that. By the time we get this sorted out, the disparity in wealth will look like an unimaginable bad dream, and if you choose to ignore what is already in the process of happening, then reap what you sow. Our economy is a snowball rolling down hill, gaining size and speed. Get out of the way!

M.
M. - Wednesday November 19, 2008 09:03AM EST

blah, blah, blah,,,,I have absolutely no idea how it can be that the majority of you who read this are living with your head in the sand. Look at a graph of the DOW averages going back to the early eighties and you'll see that at one point it was nearly a vertical line. What goes up MUST go down. 94.6% of consumers are in debt up to their ears with only about 8.5% of them standing a chance at coming out EVER ! The first # will be a 6 before it's a 10 when we look at Dow averages. Period. There's no stopping this with 700B, not even with 3 times that. By the time we get this sorted out, the disparity in wealth will look like an unimaginable bad dream, and if you choose to ignore what is already in the process of happening, then reap what you sow. Our economy is a snowball rolling down hill, gaining size and speed. Get out of the way!

Defending Champ
Defending Champ - Wednesday November 19, 2008 09:03AM EST

Henry Blodget is the last guy that any of you should be listening to for financial advice or commentary. This CROOK (Blodget) swindled investors out of millions of dollars in the late 1990's while making bogus tech stock recommendations. Now the public is listening to him again? Give me a break, this clown should be in prison.

M.
M. - Wednesday November 19, 2008 09:03AM EST

blah, blah, blah,,,,I have absolutely no idea how it can be that the majority of you who read this are living with your head in the sand. Look at a graph of the DOW averages going back to the early eighties and you'll see that at one point it was nearly a vertical line. What goes up MUST go down. 94.6% of consumers are in debt up to their ears with only about 8.5% of them standing a chance at coming out EVER ! The first # will be a 6 before it's a 10 when we look at Dow averages. Period. There's no stopping this with 700B, not even with 3 times that. By the time we get this sorted out, the disparity in wealth will look like an unimaginable bad dream, and if you choose to ignore what is already in the process of happening, then reap what you sow. Our economy is a snowball rolling down hill, gaining size and speed. Get out of the way!

JERRY C.
JERRY C. - Wednesday November 19, 2008 09:05AM EST

HURRAH FOR CULLEN/FROST. THEY ARE DISPLAYING TRUE CHARACTER

Yahoo! Finance User
Yahoo! Finance User - Wednesday November 19, 2008 09:16AM EST

….SAVE HOUSING (NOW EMPLOYMENT AS WELL) AND SAVE THE WORLD…. If we aren’t spending now one will be making.

alvin
alvin - Wednesday November 19, 2008 09:17AM EST

give the billions to the wage earners they will pay their bills and revive the economy

E-COM
E-COM - Wednesday November 19, 2008 09:21AM EST

do you like potatoes?

DON P
DON P - Wednesday November 19, 2008 09:27AM EST

Consumers price down 61% per the labor dept, ya right! Go to the store and see what has come down. Oil at $50 but were still paying $2.40 gal in Calif, Texas less than $2.00. What gives here? Appears the labor Dept has not been to Albertson's lately to see where groceries have gone....thru the roof! More change?

Anthony
Anthony - Wednesday November 19, 2008 09:33AM EST

The Rothschilds want us all to be their debt slaves. See the movie Ring of Power or bloodlines of Power or Empire of Cities (they are all the same on youtube). Stop paying your credit cards, stop paying your mortgage and take the money out of your bank and your 401k.

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