Steve Eisman Asks If U.S. Financials Are Dead Forever

Steve Eisman of FrontPoint Financial Services Fund was at the Ira Sohn Conference yesterday, and he asked whether U.S. financials were dead forever. Eisman said that capital funding is no longer an issue here in the U.S., and Tier 1 capital ratios are strong. There are a number of reasons for the under-performance, including the Volcker rule, Basel 3, mortgage scandals, and regulatory uncertainty. Analysts were valuing banks in 2009 off 2012 estimates because they were losing so much money. Eisman believes that in 2012, the Federal Reserve will start to raise rates, and thus, loan growth and balance sheets will grow. The credit quality of the U.S. consumer is better, but the Fed is in no rush to raise rates, so net interest margins are suffering. Loan growth is elusive, and there needs to be tremendous demand for loan growth to offset the margin compression currently being seen. Without revenue growth, everyone is giving up. Eisman said that he likes the property & casualty sector, despite the sector being derated. Pricing improvement is being seen, albeit still spotty. The marine sector is one sector Eisman said saw strength. He said that once prices start to move, they are like an ocean liner, and they will improve for years. He mentioned AON AON, Marsh & McLennan Companies, Inc. MMC and Willis as the best ways to play the sector.