Whitney Says Banks Are Broken
On CNBC's Worldwide Exchange, Meredith Whitney discussed her view of the banking sector. Whitney is famous for forecasting the banking crisis in 2007 and the insolvency of numerous investment firms.
Whitney doesn't believe that" there's much the Fed can do to get banks to start lending again. There's a structural problem with the banks, the model is broken."
Whitney does not see bank earnings returning to normalized levels for the foreseeable future. "I think that people that expect an earnings handoff to a normalized scenario are going to be disappointed," she said.
Banks derived significant income from selling mortgages and generating a fee through a process called securitization. The profit motive is gone from the housing market now that banks do not have anyone to sell these mortgages too.
Now the question is, how will Bank of America (BAC), JPMorgan Chase (JPM), Wells Fargo (WFC), Citigroup (C) and other major banks make up for the lost earnings?
