Eisman Warns Against 2008 Repeat Amid Bank Earnings Concerns

UPDATE: Investor Steve Eisman, known for his accurate prediction of the 2008 financial crisis, has dismissed fears of a similar crisis emerging after recent bank earnings reports. Speaking on the Eisman Playbook podcast on October 14, 2023, he emphasized that while there are signs of credit deterioration, they are “only marginal” and not indicative of an impending recession.

Recent earnings from major banks including JPMorgan Chase & Co., Citigroup Inc., and Wells Fargo & Co. revealed mixed results regarding commercial credit quality. Eisman pointed out that while there was a notable rise in nonaccrual loans at JPMorgan—up 33% year-over-year—and Citigroup—up 119%—the overall situation does not warrant alarm. He stated, “There was some deterioration on the edges, but not enough to raise real alarm bells.”

In contrast, Wells Fargo, Bank of America, and PNC reported year-over-year declines in credit issues. Eisman compared the current environment to the lead-up to the 2008 crisis, asserting, “The great financial crisis was different.” He highlighted deteriorating underwriting standards back then, noting that many unqualified borrowers were receiving loans. “Right now, I think we are in a normal cycle,” he concluded.

However, the atmosphere is tense, especially among regional banks. Zions Bancorporation NA, based in Utah, reported a troubling $50 million charge-off in the third quarter linked to its commercial and industrial loans, with losses totaling $60 million. Following this announcement, Zions’ stock plummeted by 12%. Additionally, Western Alliance Bancorp faced a similar downfall after revealing a fraud lawsuit against a borrower.

Adding to the unease, JPMorgan Chase‘s CEO Jamie Dimon warned during the bank’s third-quarter earnings call that rising credit risks could lead to more issues, stating, “When you see one cockroach, there’s probably more.” His comments followed bankruptcies of key players in the auto sector, including Tricolor Holdings, a subprime auto lender.

On Friday, shares of JPMorgan Chase fell 0.33%, closing at $297.56, although they saw a slight recovery of 0.32% in overnight trade. The stock maintains strong momentum and growth potential, as noted in Benzinga’s Edge Stock Rankings.

As the financial landscape evolves, investors are closely monitoring these developments. With credit concerns lingering, the situation remains fluid. Stay tuned for further updates as we track the impact on the financial markets and regional banks.

This urgent news serves as a reminder of the complexities within the current financial environment, prompting investors to remain vigilant as they navigate these changes.