Whitney May Be Going to the Well Too Often

Oppenheimer’s Meredith Whitney has now taken Wells Fargo (WFC) to task. She downgraded the stock to Underperform from Perform, saying the company is under-reserved by at least $4.5 billion and will need to take a reserve “true-up” in 2008 and potentially more in 2009.

Whitney cut EPS estimate for FY2008 to $1.20 from $2.15 vs. consensus of $2.33. FY2009E goes to $2.00 from $2.15 vs. consensus of $2.65.

Whitney has been the analyst dujor after her being the first to make calls on Citigroup (C) and the rest of the financial sector. By taking on Wells Fargo, Whitney is also running a contrary opinion to Berkshire Hathaway’s (BRK.A) Warren Buffett who has added to his position in the stock recently.

Whitney must be given credit for her calls last fall that came to fruition. One thing does tend to happen when you have a success like that. People tend to then keep going in the same direction for too long.

Wells Fargo is by far one of the most conservative banks out there and when one get’s into the write-down guessing game one get’s into very a very opaque area. We are getting past the large “write-down” area of this situation and now have to begin looking to the other end of it. What will be coming will be “write-ups” on the same securities that have recently decimated bank earnings.

Whitney will most likely be correct that Wells may take additional charges, but the degree to which she has predicted seems a bit excessive for a bank and management with the history of Wells Fargo.

Disclosure (“none” means no position):Long WFC