onsdag 17 augusti 2011

Financial Giants Turning Into 'Zombie Banks': Whitney

Take away : "its a structural change, and these take time, and were now moving from a highly leveraged lending business to a agro/commodities busiess."

The top U.S. financial institutions have become zombie banks that will need a decade to adjust their businesses to the new realities in the industry, analyst Meredith Whitney told CNBC.

In banking parlance, zombies have little net worth but are backed by the government and continue to meet their obligations.

Amid an environment in which new regulations demand that banks hold more capital and lending demand is uneven and likely to be taken over by smaller institutions, Whitney said the big companies face major challenges.

"The large banks which dominate most of the lending in the United States are effectively zombie banks," she said. "You've got an expense structure that just doesn't match the revenue structure. So it's a classic issue of negative operating leverage. You don't buy institutions that have negative operating leverage. This is a multi-year cycle that these guys will have to go through."

She said the term applies as well to stressed European banks such as Societe Generale that were sustaining heavy losses Wednesday amid credit concerns.

Getting back to normal probably will take large institutions, such as Bank of America
10 years as they cope with a new regulatory environment that will demand banks change focus and cut size, Whitney added.


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