Investor Steve Eisman Says 2008 Crisis Fears Are Overblown

UPDATE: Investor Steve Eisman, renowned for predicting the 2008 financial crisis, has dismissed current fears of a similar downturn following recent bank earnings reports. In a podcast released October 14, 2023, Eisman stated that the signs of credit deterioration are “only marginal” and insufficient to trigger alarm bells.

Amid ongoing discussions about the health of the banking sector, Eisman highlighted issues revealed in earnings from major banks, including JPMorgan Chase & Co., Citigroup Inc., and Wells Fargo & Co.. He pointed out that while there are “signs of credit deterioration on the commercial side,” these indicators do not hint at an imminent recession. “Yes, there are signs of credit deterioration on the commercial side,” Eisman noted, “but not enough to actually cause a recession or indicate that a recession is about to occur.”

The recent earnings reports showed mixed trends in commercial credit. Nonaccruals at JPMorgan surged 33% year-over-year, while Citigroup experienced a staggering 119% increase. In contrast, banks like Wells Fargo, Bank of America, and PNC reported year-over-year declines, indicating a complex landscape in the banking sector.

Eisman drew a clear line between today’s environment and the pre-2008 crisis, emphasizing that underwriting standards back then had severely declined. “The great financial crisis was different,” he asserted, stating that “people who should never have been given loans were swimming in them.” He concluded by characterizing the current situation as part of a “normal cycle.”

However, concerns are mounting among smaller regional banks. For instance, Zions Bancorporation NA revealed a $50 million charge-off related to its commercial and industrial loans, leading to a 12% drop in its stock price. Similarly, Western Alliance Bancorp faced turmoil after filing a lawsuit against a borrower for fraud, contributing to a further decline in its stock.

Adding to the unease, JPMorgan Chase CEO Jamie Dimon warned of rising credit risks during the bank’s third-quarter earnings call. He cautioned, “When you see one cockroach, there’s probably more,” referencing recent bankruptcies in the sector, specifically mentioning Tricolor Holdings and First Brands.

As of Friday, shares of JPMorgan Chase ended the week at $297.56, down 0.33%, but have shown slight recovery with a 0.32% increase in overnight trade. Investors are closely monitoring these developments as they could signify underlying issues in the banking system.

With the landscape rapidly changing, market analysts and investors alike are urged to stay vigilant. As Eisman indicated, while the current climate might not mirror 2008, the financial world remains unpredictable.

Stay tuned for ongoing updates as this situation continues to evolve.