Steve Eisman Dismisses 2008 Crisis Fears After Bank Earnings

UPDATE: Investor Steve Eisman has dismissed comparisons to the 2008 financial crisis, following recent bank earnings reports that raised questions about credit quality. On the latest episode of the Eisman Playbook podcast, aired on October 14, 2023, he emphasized that the current credit deterioration is “only marginal” and not sufficient to trigger recession alarms.

Recent earnings from major banks including JPMorgan Chase & Co., Citigroup Inc., and Wells Fargo & Co. revealed mixed trends in commercial credit, but Eisman reassured listeners that the situation is not dire. He stated, “Yes, there are signs of credit deterioration on the commercial side, but not enough to actually cause a recession or indicate that a recession is about to occur.”

Key figures from the earnings reports show troubling trends in some areas. Nonaccrual loans at JPMorgan surged by 33% year-over-year, while Citigroup reported a staggering 119% increase. In contrast, Wells Fargo, Bank of America, and PNC experienced year-over-year declines, suggesting a mixed environment for commercial credit.

Drawing comparisons to the lead-up to the 2008 crisis, Eisman pointed out significant differences in underwriting standards. “The great financial crisis was different,” he noted, highlighting that during that period, “people who should never have been given loans were swimming in them.” Eisman concluded that the current market is simply going through a “normal cycle.”

Concerns about credit quality are especially pronounced among regional banks. Zions Bancorporation NA reported a $50 million charge-off in the third quarter related to commercial loans, leading to a 12% drop in stock price. Similarly, Western Alliance Bancorp faced stock declines after filing a lawsuit against a borrower for fraud.

Adding to the unease, JPMorgan Chase CEO Jamie Dimon warned during the company’s earnings call that rising credit risks could pose significant challenges ahead. “When you see one cockroach, there’s probably more,” he stated, referring to recent bankruptcies in the auto lending sector.

As of the end of trading on Friday, shares of JPMorgan Chase fell by 0.33%, closing at $297.56, but showed signs of recovery with a 0.32% increase in overnight trading. The stock remains a strong performer in momentum and growth rankings.

With regional banks under scrutiny and larger institutions showcasing mixed credit health, investors will need to closely monitor upcoming earnings releases for further insights into the financial landscape. What happens next could shape market perceptions and investor confidence in the weeks to come.

Stay tuned for further updates as this story develops and implications for the economy unfold.