Steve Eisman Dismisses 2008 Comparisons After Bank Earnings: 'Only Marginal' Credit Deterioration So Far, Not Enough To Raise Alarm Bells

Investor Steve Eisman, who famously predicted and bet against the 2008 financial crisis, is pushing back against fears of it repeating following recent bank earnings reports last week.

‘Only Marginal’ Credit Deterioration

On The Real Eisman Playbook podcast on Saturday, Eisman discussed the credit quality issues and deteriorations showcased in recent bank earnings reports last week.

“Yes, there are signs of credit deterioration on the commercial side,” Eisman said, “but not enough to actually cause a recession or indicate that a recession is about to occur.”

Bank earnings from JPMorgan Chase & Co. (NYSE:JPM), Citigroup Inc. (NYSE:C), Wells Fargo & Co. (NYSE:WFC), and others revealed mixed trends in commercial credit.

“There was some deterioration on the edges, but not enough to raise real alarm bells,” Eisman said. He pointed to nonaccruals at JPMorgan rising 33% year-over-year and Citigroup up 119%, while banks like Wells Fargo, Bank of America and PNC showed year-over-year declines.

Contrasting today’s environment with that leading up to the 2008 crisis, Eisman said, “The great financial crisis was different,” noting that underwriting standards at the time had deteriorated to such an extent that “people who should never have been given loans were swimming in them.”

He concluded by saying, “Right now, I think we are in a normal cycle.”

Credit Concerns Resurface Among Regional Banks

While most of the big banks posted strong quarterly performances last week, there are growing concerns regarding the credit quality of the small regional banks.

Utah-headquartered Zions Bancorporation NA (NASDAQ:ZION) reported a $50 million charge-off during the third quarter related to its commercial and industrial loans, with losses amounting to $60 million. The stock dropped 12% following the announcement.

This was followed by Western Alliance Bancorp (NYSE:WAL), which dropped alongside Zion after revealing that it had filed a lawsuit against a borrower for fraud.

JPMorgan Chase’s CEO Jamie Dimon caused further unease when he warned of rising credit risks during the company’s third-quarter earnings call last week. Dimon said, “When you see one cockroach, there’s probably more,” referring to the recent bankruptcies of Tricolor Holdings, a subprime auto lender, and First Brands, an auto parts manufacturer.

Shares of JPMorgan Chase & Co. were down 0.33% on Friday, ending the week at $297.56, and are currently up 0.32% in overnight trade. The stock scores high on Momentum and Growth in Benzinga’s Edge Stock Rankings, with a favorable price trend in the medium and long-term. Click here for deeper insights on the stock, its peers and competitors.