UPDATE: Investor Steve Eisman has dismissed growing fears of a repeat of the 2008 financial crisis, following the release of recent bank earnings reports. During the latest episode of the Real Eisman Playbook podcast on October 21, 2023, he stated that credit deterioration among U.S. banks is “only marginal” and insufficient to raise alarm bells.
Eisman’s comments come on the heels of mixed earnings from major banks, including JPMorgan Chase & Co. (NYSE:JPM), Citigroup Inc. (NYSE:C), and Wells Fargo & Co. (NYSE:WFC), revealing signs of credit stress but not signaling an impending recession. Eisman noted that while there are signs of credit issues, particularly in commercial lending, they do not suggest a crisis is on the horizon. “Yes, there are signs of credit deterioration on the commercial side,” he remarked, “but not enough to actually cause a recession or indicate that a recession is about to occur.”
Eisman’s reassurances come as JPMorgan reported a staggering 33% year-over-year increase in nonaccrual loans, while Citigroup saw a shocking 119% jump. Conversely, banks like Wells Fargo, Bank of America, and PNC reported declines in similar metrics, hinting at a mixed landscape for the industry.
In stark contrast to the pre-2008 environment, Eisman emphasized that current underwriting standards remain robust. He stated, “The great financial crisis was different,” highlighting how lax lending practices allowed unqualified borrowers to obtain loans. His conclusion? “Right now, I think we are in a normal cycle.”
Despite Eisman’s optimism, concerns are rising among smaller regional banks. Zions Bancorporation NA (NASDAQ:ZION) reported a troubling $50 million charge-off related to commercial loans, triggering a 12% drop in its stock price. Following closely, Western Alliance Bancorp (NYSE:WAL) faced its own challenges, including a lawsuit against a borrower for fraud, contributing to market unease.
Adding to the tension, JPMorgan CEO Jamie Dimon expressed worries about increasing credit risks during a recent earnings call. He warned, “When you see one cockroach, there’s probably more,” referring to recent bankruptcies in the subprime auto lending sector. This statement underscores a growing sense of caution among investors.
As the market reacts, shares of JPMorgan Chase closed down 0.33% on Friday, ending the week at $297.56, but have seen a slight recovery of 0.32% in overnight trading. This stock continues to score high on momentum and growth metrics, indicating resilience in a challenging environment.
As the financial landscape continues to evolve, all eyes will be on upcoming earnings reports and further guidance from industry leaders. Investors and analysts alike are keen to see if credit conditions will stabilize or worsen, which could have implications for the broader economy.
Stay tuned for further updates as this story develops.
