Meredith Sees ‘Rocky Sledding’ Ahead, Wants Investors To Avoid Banks

In an article on CNBC, a well-known banking analyst, Meredith Whitney, has warned investors against investing in financial stocks. She has advised traders to avoid the banking sector in particular, as there is a high probability of Senate's financial reform bill restricting credit and hurting bank earnings. "Politicians have proven far worse than our worst expectations. It could be very bad for banks," she said in an interview.

Two new credit card rules in the Senate bill seem to be particularly troublesome. One rule would force banks to comply with individual state caps on credit card interest rates. This could make rates in one state lower than that in another, causing banks not to lend in certain states. "It's going to make accessing capital so difficult for pockets of the country, particularly for small businesses that often depend on credit cards for funding,” said Whitney.

The other rule would regulate how much credit card issuers could charge merchants for using their cards. Instead of benefiting consumers, the rule will “price community banks out of the market,” restricting credit further. Meredith said, "Some of these regulatory proposals are going to make it so difficult for everyone involved that you'll see, I think, at least another $1.3 trillion (of credit) sucked out of the system. Instead of jamming down last-minute regulations just to appear to be tough on banks, Congress should make it easier for small businesses to obtain credit.”

Given all this, Whitney still considers US banks to be in much better shape than their European counterparts and would not invest in the latter even "in a million years."

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