In a live interview on CNBC, financial analyst Meredith Whitney said bank stocks have 15% upside in the near-term due to mortgage loan modifications, “then you flatline, then I think you have another leg down.” Whitney expects this quarter to be the “mother of all mortgage quarters.” She believes BofA (BAC) is the “cheapest” bank from a tangible common equity perspective, and upgraded Goldman Sachs (GS) to Buy from Neutral, saying the Wall Street titan probably will earn $4.65 per share in Q2, $20 for the year and more than $22 for fiscal 2010. She set her 12-month target on the firms’ shares to $186. Goldman will benefit, she said, from being a key player in a “tsunami of debt issuance” by governments as they try to fill gaps in underfunded budgets.
While Whitney raised her short-term outlook for banks, she cautioned on the long-term outlook for the economy which according to her remains murky. Whitney also said unemployment is likely to rise to 13% or higher and will weigh on the economy for several years.
“Unemployment continues to drive higher and the banks are not prepared for double-digit unemployment,” she said. “That’s going to be an issue for them that doesn’t go away for the next year and a half.” [CNBC]
