UPDATE: Renowned investor Steve Eisman has just dismissed rising fears of a repeat of the 2008 financial crisis, following recent bank earnings reports. Speaking on the Eisman Playbook podcast on October 14, 2023, Eisman stated that credit deterioration is only “marginal” and not sufficient to trigger alarm bells.
Eisman’s remarks come in the wake of mixed earnings reports from major banks like JPMorgan Chase & Co. (NYSE:JPM), Citigroup Inc. (NYSE:C), and Wells Fargo & Co. (NYSE:WFC), which revealed notable trends in commercial credit. While there are signs of credit quality issues, Eisman emphasized that “there are no indications that a recession is imminent.”
Recent bank data revealed that nonaccruals at JPMorgan surged by 33% year-over-year, while Citigroup experienced an alarming increase of 119%. In contrast, banks like Wells Fargo, Bank of America, and PNC reported declines in credit issues, which Eisman noted reflects a more stable environment compared to the lead-up to the 2008 crisis.
Eisman stated, “The great financial crisis was different,” highlighting that the underwriting standards back then had severely deteriorated, allowing unqualified borrowers to secure loans. He firmly believes that the current economic cycle is “normal,” despite the credit concerns emerging among smaller regional banks.
Concerns about credit quality are intensifying among regional banks. Zions Bancorporation NA (NASDAQ:ZION) reported a significant $50 million charge-off related to commercial loans, resulting in losses of $60 million. This announcement led to a 12% drop in the bank’s stock. Similarly, Western Alliance Bancorp (NYSE:WAL) faced stock declines after disclosing a lawsuit against a borrower for fraud.
Adding to the unease, JPMorgan Chase CEO Jamie Dimon issued a cautionary note during the bank’s third-quarter earnings call, warning, “When you see one cockroach, there’s probably more.” This statement referred to the recent bankruptcies of Tricolor Holdings, a subprime auto lender, and First Brands, an auto parts manufacturer.
As of Friday, shares of JPMorgan Chase were down 0.33%, closing at $297.56, though they have seen a slight recovery in overnight trade, gaining 0.32%. Despite the fluctuations, the stock remains high on Benzinga’s Edge Stock Rankings for Momentum and Growth, signaling a favorable long-term price trend.
Investors and analysts will be closely monitoring the evolving landscape of credit quality as more banks report their earnings in the coming weeks. With Eisman’s insights and Dimon’s warnings in mind, the financial community is on alert, assessing the potential implications for the market and the economy at large.
Stay tuned for further updates as this situation develops.
