More, better, analysis on 'bank profitability'

Meredith Whitney's on CNBC this morning (occasionally the little network that couldn't feels compelled to have an honest guest host)

Bottom line - she's not at all convinced that the banks are healing, despite those 'we're making money' statements from last week. Whitney points out a few nagging little problems with those intimations:

1. We haven't seen real numbers yet, and won't til end of Q1, as I mentioned yesterday. Among other thing, banks only mark to market quarterly, and markets are weakening. Hence expect more large asset losses next month
2. In fact, '09 will be worse for banks than '08 was, if that's even possible. But, because the fundamentals of the economy are fast deteriorating, real loan losses - especially for consumer banks (Citi, BoA, Cap One, Amex, Chase, etc etc) - will accelerate like mad, as consumers go belly up, and default on loans beyond mortgages, and as overall credit continues to dry up.
3. Banks continue to work with flawed economic assumptions, which are masking their real exposures. Whitney mentions two such flawed assumptions, both of which are mind-blowing: 1. They've baked in 6% unemployment - already 33% too low, and we know that unemployment will approach 10% or higher, so bank estimates here are gonna be 66% off. A pretty big miss. 2. Banks assume a peak-to-trough decline in home prices in the low 30% range. That, again, will be too low, again by as much as 1/3, as prices are headed down by more like 40-45% it would now appear....
4. States and municipalities are another shoe to drop, as they borrowed and spent liberally like everyone else and are seeing their tax revenues collapse. Many will default and/or face massive losses (see California, Michigan, Miami, etc). This will hammer a ton of banks, as this is a huge sector of the US economy
5. Banks have nowhere near the capital needed to absorb these coming losses, and will need more bailouts....

Fun stuff. We have here another case of bank execs trying to stoke confidence and rally their stock prices, but in doing so they're flying in the face of the facts - and facts which they fully know. Why the misrepresentaions? Well folks, the big banks are desperate. They know how massive their liabilities are but are still hoping to buy time and pray the economy magically improves.

Once those ugly facts that Ms Whitney knows so very well come fully into view (early April), expect to see another round of despair and selling: Citi at $1.00 again, BoA at $2.50, and the overall market again heading down the tubes. The good news? A new round of urgent (belated) calls for nationalization which may get a hearing and draw public support. The bad? Another few months lost, another few months for the crisis to deepen and spread.