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Bram de Haas
Bram de Haas
Articles (439)  | Author's Website |

Steve Eisman: Long US Banks, Short Euro and Canadian Banks

Eisman's most interesting trade is to be long US banks and short European and Canadian banks

April 26, 2020 | About:

Steven Eisman, of "The Big Short" fame, appeared on CNBC April 24 for an interview. Eisman, who's known for betting against banks and mortgages in the great financial crisis, now likes the major US banks. He describes them as the best cyclical play out there, as he things they won't be destroying book value and won't need to raise capital. He doesn't mention names, but I assume he's talking about the biggest U.S. banks, J.P. Morgan (NYSE:JPM), Wells Fargo (NYSE:WFC), Citigroup (NYSE:C) and Bank of America (NYSE:BAC).

In the financial crisis, the banks failed. The government had to bail them out. Banks are fine now, even though the government has to bail out the bond market again. This is because the government has spent a lot of time de-risking and de-leveraging the banking system.

They have an earnings problem short term but they are the best long term cyclical play, as they won't have to destroy any book value to get through the recession. The accounting rules have also changed. Banks would have taken losses gradually in the past, but with the new accounting standards, they have to take reservations reflecting a recession now. The numbers already reflect a lot of the future pain.

One interesting thing about Eisman being long U.S. banks is that he is short Canadian and European banks. The European banks are obvious; everyone knows they are weak from a business standpoint, complete with negative interest rates to sap profits. The Canadian banks have not had a credit cycle in 30 years, so Eisman believes they will have real problems in this respect. You can read more about this subject in one of my previous GuruFocus articles here.

Disclosure: short several Canadian and European banks.

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About the author:

Bram de Haas
Bram de Haas is managing editor of The Special Situations Report and Founder of Starshot Capital B.V.

Visit Bram de Haas's Website


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