Steven Eisman, of "The Big Short" fame, said in a recent Bloomberg interview (watch below) he is short Deutsche Bank (DB, Financial), Canadian financials and is still short Wells Fargo (WFC, Financial).
Overall, though, he's very confident in U.S. banks, which he thinks are now much more secure after the financial crisis, saying:Â
"The financial system in the United States is safe."
From prior interviews we know he's long Citigroup (C, Financial), to name one long.
Internationally, he said European banks have improved, but not enough. Canada will have issues with the housing market. On multiple occasions, Eisman has avoided talking about China. Neuberger Berman, where he works, has offices in Shanghai and Hong Kong, but Eisman says he is not informed enough to comment.
On Deutsche Bank, which has had a terrible ride down already, he's quite negative:
"Deutsche Bank is a problem bank; it will have to shrink dramatically."
The global behemoth of a bank is already much cheaper compared to its safer U.S. peers:
Deutsche Bank may be cheap, but it is in the middle of a restructuring, nearly a decade after the financial crisis, coinciding with the end of quantitative easing and the Federal Reserve hiking rates. This may not be the best time to restructure assets. The bank is also facing a ton of litigation.
A new CEO was recently brought in as well. He introduced a restructuring plan that didn't really convince the Street, so there is tremendous uncertainty about the bank's future, which is not good since your customers need to trust you. Having said that, if you believe Deutsche can mirror something like a JPMorgan (JPM, Financial) in 10 years, you may have a 10-bagger on your hands. Overall, I don't like the odds.
In regard to JPMorgan, Eisman sees an interesting trend. We are in the midst of a very friendly merger and acquisition environment. Eisman believes the huge tech investments made by JPMorgan and other major banking franchises will drive smaller regional banks to merge in order to be able to meet those tech investment requirements, saying they will have to "bulk up."
In contrast, he is not excited about bonds at all:
"Quantitative easing is over. Rates are going up. I just don't see many opportunities in the bond market."
That doesn't really set him apart, as I have a lot of trouble finding great investors that are excited about bonds. Luckily for the government and investment-grade companies, there are a lot of forced buyers due to regulation like insurers, banks and pension funds. This is especially true in Europe.
In Canada, real estate prices have started to stall after a great run:
Eisman's theme of Canadian financials experiencing trouble could play out rather soon.
While Eisman didn't comment on Wells Fargo specifically, I'm guessing his short position may have to do with the increased scrutiny of regulators and the bank having to bring its practices more in line with competitors while being valued at a relatively high multiple. As the graph above shows, Citigroup is much cheaper based on price-book value.Â
Disclosure: No positions.
