Steve Eisman: Minor Credit Issues, No 2008 Crisis Repeat Yet

Investor Steve Eisman, known for predicting the 2008 financial crisis, has dismissed rising fears of a similar economic downturn after recent bank earnings reports. In an urgent update from his podcast on October 14, 2023, Eisman stated there’s been “only marginal” credit deterioration, emphasizing that current trends do not signal an imminent recession.

Recent earnings from major banks, including JPMorgan Chase & Co. and Citigroup Inc., reflected mixed trends in commercial credit. Eisman acknowledged that there are signs of credit issues, particularly on the commercial side, but stressed, “not enough to actually cause a recession or indicate that a recession is about to occur.”

The latest bank reports revealed that nonaccrual loans at JPMorgan surged 33% year-over-year, while Citigroup saw a staggering 119% increase. Despite this, banks like Wells Fargo and Bank of America reported declines in similar metrics. Eisman contrasts today’s market with conditions leading up to the 2008 crisis, noting, “The great financial crisis was different,” as lending standards were significantly lower at that time.

Amidst these developments, concerns are mounting over the credit quality of smaller regional banks. Zions Bancorporation NA reported a hefty $50 million charge-off in the third quarter, leading to a 12% drop in stock prices following the announcement. Similarly, Western Alliance Bancorp faced stock declines after filing a lawsuit against a borrower for fraud.

Adding to the unease, JPMorgan Chase‘s CEO, Jamie Dimon, raised alarms during the company’s earnings call, warning, “When you see one cockroach, there’s probably more,” in reference to recent bankruptcies in the sector.

Investors are closely monitoring these developments, with JPMorgan Chase shares down 0.33% on Friday, closing at $297.56. However, they have seen a slight uptick in overnight trading. The bank’s stock continues to rank high in momentum and growth, reflecting a favorable outlook in the medium and long term.

With the financial landscape shifting rapidly, all eyes are on upcoming earnings reports and potential policy responses from regulators. Stay tuned for the latest updates as this situation develops.