Thursday, 6 December 2007

Whitney sees Citigroup at $25 or lower

Meredith Whitney, analyst at CIBC world markets has been in the news lately with her rather grim view on Citigroup. In her latest piece she suggests that Citigroup is worth possibly $25 or less.

Whilst her peers don't share the same view they probably should be taking notice as she has been right on the money to date. Just over a month ago Whitney said Citigroup would need to cut it's dividend or raise capital to bolster it's capital ratios. Last week that prediction came true.

In an interview on Bloomberg yesterday Whitney said she thinks Citigroup consensus earnings estimates are 30- 40% too high. Whitney says analysts have underestimated the direct exposure of banks such as Citigroup to the subprime crisis through the amount of consumer loans they carry on their books.

She argues that prime borrowers that had little money down and with little to no equity in their home will become the new subprime borrowers and that banks and analysts alike have vastly underestimated the potential losses from the number of these loans that will go sour. Click on the image below to listen to the interview.