Meredith Whitney on Bloomberg: Dimon is Incredible, Still Bearish on Citi

Earlier today, Meredith Whitney of Meredith Whitney Advisory Group appeared on Bloomberg Surveillance to discuss JP Morgan JPM, the overall banking industry, and the U.S. economy. Whitney noted that she does not think the trading loss could have happened at a worse time for the banking industry. She also said that it is a difficult trade to explain. Whitney does not think it has been explained well, and she argued that it is difficult to make the case that some of the transactions were not proprietary trades. Whitney praised the appearance of JPMorgan's CEO, Jamie Dimon, before the U.S. Congress last week. “He's incredible. He gave the senators a massage and they gave him a massage back,” Whitney stated. However, Whitney disagreed with Dimon on the notion that banking regulation would stymy small business lending. Whitney commented, “It stymied the velocity of money, the velocity of liquidity in the system because you have to hold more capital. It just slows down the system. But in terms of lending, absolutely not.” Whitney also pointed out that there is a big misconception about lending to small businesses. According to Whitney, since the early 1990s, small businesses have been funding themselves with home equity loans and credit card loans--they are largely funded like consumers fund themselves. Hence, the increased regulation would not decrease bank lending to small firms. Overall, Whitney expects the banking industry to be quite different 10 years in the future. On the U.S. economy, Whitney stated that “Every 60 years or so the U.S. economy reinvents itself. It's in that process right now regionally. And it just takes time.” Whitney is concerned about the creation of ghost towns in the U.S., which occurs when rich people relocate to new, high growth areas. This process leaves behind dying towns with high unemployment and a low tax base. Whitney noted that “What really matters is the real divide between have and have nots in this country. Where you want to be invested. Where businesses want to be invested. Because in these towns where businesses are leaving and taxes going up, home values are going down and are continuing to go down.” Whitney reiterated her bearish stance on Citigroup C. She said she still sees it as a pre-reverse split-type stock that is valued at $2.70 per share. Essentially, it is down from the mid $40s, where Whitney made her bearish call in October 2007.