These states are financial flops, says Meredith Whitney

Meredith Whitney, the analyst who correctly predicted Citigroup Inc.’s dividend cut in 2008, will release a report rating California’s financial condition as the worst among the 15 largest U.S. states, Fortune said.

The report rates the states by four criteria: economy, fiscal health, housing and taxes, Fortune said, citing Whitney. Texas and Virginia are the only two states to receive overall positive ratings, the magazine reported yesterday. An official at Meredith Whitney Advisory Group LLC in New York confirmed the document’s existence and said it wasn’t immediately available.

Crippling debts and deficits are about to make individual states the next casualty of the credit crisis, Whitney said, according to an article on the CNBC website.

“The similarities between the states and the banks are extreme to the extent that states have been spending dramatically and are leveraged dramatically,” Whitney said. “Municipal debt has doubled since 2000. Spending has grown way faster than revenues.”

After California, New Jersey, Illinois and Ohio tie as the second-worst, followed by Michigan, Georgia, New York and Florida, Fortune reported. Pennsylvania, Maryland and Massachusetts garnered neutral rankings. Her report ranks Texas, Virginia, Washington and North Carolina as the best states, according to Fortune.

Whitney said her report was the result of two years of work by her firm and was made difficult by the lack of figures on state spending and debt, according to CNBC.

Reminder of Banks

“It reminded me so much of the banks pre-crisis that we just kept working at it,” she said in the article. “We couldn’t find anything that gave us a clear story, we couldn’t find any information that was transparent. So we did it ourselves.”

Whitney also said a decline in bank trading revenue and a double-dip in housing would hurt fourth-quarter earnings, according to the CNBC article.

Whitney’s report is titled “Tragedy of the Commons: Launching Ratings on the Top 15 States,” according to the Meredith Whitney Advisory Group website.