The woman who called Wall Street's meltdown
Despite her unremitting bearishness, Whitney has probably never had better access to bank management. This is a bit surprising, given that being a renegade bank analyst used to be a one-way ticket to the unemployment line. (Just ask industry vets like Michael Mayo.) Nevertheless, Whitney has been landing one-on-one meetings with the likes of Bank of America CEO Ken Lewis, Merrill Lynch CFO Nelson Chai, and American Express CEO Kenneth Chenault.
Of course, a cynic might counter that it's hardly shocking that a bunch of middle-aged male bank executives would spare time for a glamorous analyst with a megawatt personality and a jock-celebrity husband. "She always had more personality than anyone else," offers former Commerce Bancorp CEO Vernon Hill.
But this explanation for Whitney's influence and access is belied by her following among money managers who treat her latest research reports like gospel. "What I like is, she's got conviction," says Scacco. "She was early, she was right, and she wasn't shy about saying it." The most recent conference call Whitney hosted for Oppenheimer's institutional clients drew as many callers - about 500 - as Exxon Mobil typically gets on its quarterly earnings calls.
Plus, as warm and engaging as Whitney can be in person, she's an utter killjoy when the conversation turns to banking and the economy. "What's ahead is much more severe than what we've seen so far," she warns a standing-room-only crowd of money managers at a May lunch meeting. Once she gets rolling, Whitney morphs into a kind of dark sage - the anti-Abby Joseph Cohen, if you will - whose doom-and-gloom views capture the prevailing mood of today's market about as perfectly as Cohen's unapologetic bullishness caught the exuberance of the late 1990s. When one shell-shocked lunchgoer presses Whitney for a glimmer of hope, she has none to offer. Asked by another money manager whether she has any doubts, Whitney concedes only one: "While my loss estimates are much more severe than those of my peers, my biggest concern is that they're way too low." That was May. By mid-July, bank stocks were down another 20%. Today, of the 14 financial stocks she covers, she rates five underperform and the rest market perform.
Just who is Meredith Whitney, and how the heck did a little-known analyst from a second-tier firm become the oracle of the bear market? The first question is simpler to answer. Whitney, 38, grew up in Bethesda, Md., one of three daughters born to Richard Whitney, a venture capitalist and onetime official in Richard Nixon's Department of Commerce (but not part of the famous Whitney clan that includes Eli and John Hay Whitney), and Barbara Gentry, an executive recruiter. She prepped at Lawrenceville, graduated from Brown University in 1992 (Whitney and I overlapped at Brown but didn't know each other), and has been working in Wall Street research pretty much ever since. Her only break from the Street was her stint at Fox's Bulls and Bears from 2003 to 2004. She took the TV gig, she says, after a noncompete with a former employer barred her from immediately accepting another analyst job.
Older sister Wendy Taylor says Meredith has always been one part workaholic and one part Ms. Popularity. It isn't an easy combo to pull off, but Whitney perfected the balancing act at a young age. Case in point: She was once the youngest paper carrier in Washington Post history, landing the job at age 8. A self-described "route baron" - she grew her earnings to $200 a week by buying up other kids' paper routes - Whitney hit on a creative way to cope with the extra workload on Sundays, when the heftier papers took longer to deliver. "I would have slumber parties on Saturday nights, so I had a work force to help me in the morning," she says. "We'd play music, and Mom would make pancakes in the morning." Did she pay her friends for their help? "No way. But they kept coming back."
Thirty years later little has changed. Whitney still works weekends but takes her fun seriously too. "I always tell people Meredith has never met a conga line she didn't lead," says Taylor, who can't visit her sister in Manhattan without being dragged out dancing till the wee hours of the morning. "She's truly larger than life."
Where does Whitney get all her energy? Exercise and (relatively) clean living, she says. She recently gave up coffee, and she works out twice a day, often under the supervision of rapper 50 Cent's personal trainer, whom she met last year at Bikini Boot Camp. (It's a fitness retreat, not a reality show. That said, Whitney's longtime friend Mary Fitzgibbon reveals that she and Whitney almost became reality-show fodder 15 years ago. A Lawrenceville buddy who was a producer for talk show host Maury Povich persuaded them to appear on a "when good girls go bad" episode. "Meredith thought it would be funny," Fitzgibbon recalls. Whitney's mom did not and talked them out of it just hours before taping. "Her mom called up and said, 'Are you girls out of your minds? You're just starting careers!'")
Whitney is fond of playing matchmaker, but she wasn't making much headway in her own personal life until she met Layfield. In addition to playing one of the WWE's most entertaining villains - he's basically the J.R. Ewing of pro wrestling - Layfield moonlights as a stock market pundit on Fox News, which is where he and Whitney first met. The relationship got off to a rocky start when Whitney mocked Layfield on air for recommending bank stocks at a time when the Fed was hiking rates. But Layfield wasn't discouraged - he's taken worse hits - and the couple married in 2005.
With most of these tales, it's the beauty who reforms the beast, not the other way around. And yes, Layfield does credit his wife for smoothing out some of his Texas-country-boy rough edges. "I know what fork to use now at the dinner table, and I drink my beer from a glass," he told the Sunday wedding section of the New York Times back in 2005. Of course, as with anything WWE-related, it's not always clear where reality ends and fable begins. Layfield didn't exactly grow up the son of a dirt farmer - his dad was CEO of a community bank - and when I ask him about the fork-and-beer story, Layfield smiles and concedes he might have been exaggerating.
Whether any of Whitney's upper-crust upbringing actually rubbed off on Layfield, it's apparent the WWE has rubbed off on Whitney. Her insider's view has given her great respect for pro wrestlers' work ethic and their willingness to lay everything on the line as performers, athletes, and stuntmen. What might have seemed risky - e.g., putting out a critical report on a sacred cow like Citi - no longer feels so dicey. "I think when you're around successful people like that, it makes you more renegade," she says.
Another eye opener for Whitney has been how gracious most wrestlers are - at least when the cameras aren't rolling - in comparison with the viper-pit culture on Wall Street. It sounds absurd - the world of high finance being less collegial than an industry in which employees belt each other in the face. But based on the time I spent backstage before the Great American Bash, Whitney has a point.
The wrestlers I met - from John Cena to Mark Henry to Paul "Big Show" Wight - all greeted Whitney like family. Henry, who plays a particularly nasty brute in the WWE story line, could not have been any nicer. For Whitney the upshot is this: She's much less inclined to take guff from Wall Streeters intent on berating her for predictions they don't like. "Life's too short," she says.
About that second question: How did Whitney go from virtual anonymity to Wall Street stardom in a matter of months? Her Citigroup call was certainly the launching pad, but Whitney's ascent didn't happen in a vacuum. Her prominence may be the best proof yet of how much the equity research game has changed since the start of the decade.
The catalyst was the settlement imposed on Wall Street in 2003 by then - New York Attorney General Eliot Spitzer, who alleged that the lure of underwriting and M&A fees was preventing analysts from giving honest appraisals of companies that were also their firms' investment-banking clients. Spitzer's solution: Erect a legal barrier that prevents analyst compensation from being tied to investment-banking revenue.
Since 2002 the percentage of ratings that are buys has fallen from 75% in 2000 to 50%, according to Starmine and Bloomberg data. The percentage of sells has risen from 1.5% to 6%. Nevertheless, it's hard to assess how much credit for this turnabout should go to the now disgraced former attorney general. The increase in sell ratings coincided with a downturn in IPOs and other stock offerings, meaning there's less for analysts to be conflicted about. "Now that corporate finance has dried up, research is freer to express its opinion," says Richard Bove, a bank analyst with Ladenburg Thalmann & Co. and a 30-year Wall Street veteran.
Another factor emboldening analysts has been the emergence of hedge funds as the biggest source of trading-commission revenue. Hedge funds crave "actionable" information, and unlike mutual fund managers, they're just as happy betting that a stock will fall as they are betting that one will rise. So, says Bove, "the analyst had better tell them what they don't like as well as what they like."
Of course, what Whitney doesn't like is just about everything these days. Her bearishness has deep roots. In fact, she was the first analyst to sound the alarm loudly about subprime mortgages, predicting back in October 2005 that there would be "unprecedented credit losses" for subprime lenders. The problem, as she saw it, was that loose lending standards and the proliferation of teaser-rate mortgage products had artificially inflated the U.S. home-ownership rate to 69% from the more natural level of 64%.
A lot of the new homeowners were in over their heads. They'd put little or no money down and thus had little incentive - and often little ability - to keep making their monthly payments when home prices started to fall and their teaser rates got bumped up. "Low equity positions in their homes, high revolving-debt balances, and high commodity prices make for the ingredients of a credit implosion, particularly at this point in the consumer cycle," Whitney wrote. That report didn't turn her into a star - though it should have - but it did land her an invitation to present her findings to the FDIC.
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