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In Meredith Whitney We Trust?

The financial analyst is slick, smart, and she sniffed out the sorry state of the banks before almost anyone else. And now she’s trying to, yes, leverage all that.

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It’s a brisk morning, and Meredith Whitney, dressed in a tightly fitted plum velvet jacket and towering red patent-leather heels, is giving me a tour of her new offices. “This will be where our research juniors are, this room is gonna be sales,” the former Oppenheimer & Co. analyst says, gesturing grandly across the 5,000 square feet of raw space above Lexington Avenue. She could almost be describing a full-fledged investment bank, which isn’t far from her aspirations.

“I joke that this has to be the Ken Chenault conference room, because he comes in and does an event for me every year,” Whitney continues in her breathy voice, referring to the chief executive of American Express. “I just want to make it nice! I’m also going to use this space to have writers, managements, thought leaders come in and entertain, like a salon series.” A drill goes off in the background, and Whitney pivots on her heel. “I’m fucking taking it on, right?”

It’s the first day in business for Meredith Whitney Advisory Group, LLC, the rather ambitious and perhaps inevitable outgrowth of Whitney’s fifteen-year career as an analyst covering financial stocks. While working at Oppenheimer, Whitney became famous for issuing an October 2007 research report that said Citigroup would have to raise $30 billion by cutting its dividend or selling assets in order to survive. The subprime-mortgage market had already fallen apart, but the bankruptcy of Lehman Brothers and the paralysis of the financial system were then still practically unimaginable. The thought that Citigroup might be insolvent seemed absurd. The day after Whitney put out her report, though, Citigroup shares plummeted. The company’s CEO, Chuck Prince, resigned a few days later, and the bank spiraled down.

Whitney wasn’t the first to point out problems at Citigroup: The Deutsche Bank analyst Michael Mayo had urged investors to dump Citigroup shares two weeks before her call. But the combination of being right, being sure of herself, and being media savvy transformed Whitney into the most famous and feared woman in finance. Many of her predictions about Citigroup, Merrill Lynch, and Bank of America proved correct, and she said things would continue to get worse through 2008, which they did. She is now a regular face on CNBC and Bloomberg; bank executives take her seriously, and fund managers respect her. Such is Whitney’s influence that she is now in a position to help decide how the United States will fix its banking system.

At the same time, she is trying to capitalize on her moment, and she’s so confident that she’s financing the new venture herself. “I had people be like, ‘Oh, let me give you seed capital, yadda yadda,’ ” Whitney says. “I’m not working for anyone anymore. That’s full-stop done. I’m never going back.”

Whitney is an unlikely figure for the job of keeping Wall Street honest. For one thing, she’s a woman: “The funny thing is, in your twenties you try and look serious, and after your twenties, you just try and look hot,” she jokes. “I’m not an old white dude, so I stick out.” More important, her outsider status may have put her in a position to see what others didn’t, or at least to go public with it.

Whitney is also benefiting from a boomlet in doomsaying. The media loves anyone with a bleak forecast, turning obscure geeks like NYU economist Nouriel Roubini and The Black Swan author Nassim Nicholas Taleb into tabloid characters. On the day that Whitney announced the creation of her new company, she also declared that it would take years to resolve the banks’ problems but that nationalizing them would be a disaster, which led to an interview on CNBC with Maria Bartiromo. Two days later, Roubini pounded the drums for nationalization in The Wall Street Journal. And on it goes.

Whitney’s move has plenty of precedents on the Street. Ivy Zelman, who covered home-building stocks for Credit Suisse, now runs Zelman & Associates, and Dana Telsey, a retail-industry analyst at Bear Stearns for many years, now has Telsey Advisory Group. The field tests even hard-earned reputations. Elaine Garzarelli, then an analyst at Shearson Lehman, predicted the stock-market crash of 1987 and rocketed to Wall Street stardom overnight. She launched her own business, Garzarelli Research, in 1995. If you haven’t heard of her, though, there’s a reason: She hasn’t replicated that feat since. The pressure is on for Whitney to continue to be right and prove her value in a world saturated with expert opinion. “You’ve got a superstar in a giant company who goes out on her own—it seems natural,” said an executive at a major financial institution. But, he added, “We don’t know how they make money, period. If you have a Schwab account, you can get Goldman Sachs research. Why do you have to pay Meredith?”


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