Steve Eisman Urges Calm: Credit Concerns ‘Only Marginal’

UPDATE: Investor Steve Eisman, known for predicting the 2008 financial crisis, is dismissing fears of a repeat scenario as credit quality concerns emerge from recent bank earnings reports. Speaking on the Real Eisman Playbook podcast on October 14, 2023, Eisman stated that the current credit deterioration is “only marginal” and not sufficient to raise alarm bells.

Recent earnings from major banks like JPMorgan Chase & Co. and Citigroup Inc. revealed mixed trends in commercial credit. Eisman noted a 33% increase in nonaccrual loans at JPMorgan year-over-year and a staggering 119% rise at Citigroup, yet emphasized that these figures do not indicate an impending recession. “Yes, there are signs of credit deterioration on the commercial side,” he said, “but not enough to actually cause a recession or indicate that a recession is about to occur.”

While large banks posted strong results, concerns are mounting for smaller regional banks. Zions Bancorporation NA reported a $50 million charge-off related to commercial loans, leading to a 12% drop in its stock price. Following closely, Western Alliance Bancorp experienced declines after revealing it had filed a lawsuit against a borrower for fraud.

Adding to the unease, JPMorgan Chase CEO Jamie Dimon warned of rising credit risks during the bank’s third-quarter earnings call. He remarked, “When you see one cockroach, there’s probably more,” alluding to recent bankruptcies in the subprime auto lending sector. The stock of JPMorgan ended the week at $297.56, down 0.33% but showing a slight recovery in after-hours trading.

Eisman contrasted the current environment with the lead-up to the 2008 crisis, stating, “The great financial crisis was different,” highlighting that underwriting standards back then had significantly deteriorated. He believes the current situation is part of a “normal cycle” rather than a precursor to economic collapse.

As credit concerns resurface, investors are urged to stay vigilant. The market is reacting to these developments, and analysts will be closely monitoring the performance of both large and regional banks in the coming weeks. Stay tuned for further updates on this story as it develops.

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