Steve Esiman, who predicted and profited off the subprime crisis, said that he is staying away from banks stocks because of the risks posed by crimped margins, and stricter regulations. Eisman, Neuberger Berman’s senior portfolio manager, told CNBC’s Squawk box that he believes the entire bank sector to be uninvestable. Eisman’s thesis of a bearish outlook is based on the fact that Eisman believes the bank sector has been losing money for a long time. The uncertainty caused by the failure of Silicon Valley Bank in early this year has triggered outflows from other regional banks and large institutions. “The banking industry’s deposits are still $2 trillion over trend. It will still come out… but it will come out quicker. Eisman stated that the notion that interest margins will be at their lowest anytime soon is just wrong. The net interest margin of a bank is an important figure in the industry. It measures the difference between what the bank pays to account holders and the amount it earns from loans. Bank margins were hurt by the spike in short-term interest rates. Investors hoped that this would soon change, but despite Federal Reserve efforts, the yield curve remains inverted. The banks are also under pressure to increase the rates they pay on deposits to prevent their depositors from leaving. The SPDR S & P Regional Banking ETF, which tracks 140 local banks, has dropped more than 33% in the past year. Second, the investor who is widely followed said that the new regulations to increase debt levels do not help the situation. In a bid to protect the public from further failures, regulators announced plans last month to force American banks that have assets of at least $100 billion to issue debt, and to strengthen their “living wills”. Eisman stated that “the new regulations have been released, to increase capital in the banks, which is actually the wrong thing the regulators are trying to do.” Eisman said, “They should focus on raising liquidity requirements for mid-cap and small-cap banks but are doing the opposite.” Eisman became famous for his bets against subprime loans prior to the 2008 financial crises, which were chronicled by Michael Lewis in “The Big Short” and the Oscar-winning film based on it. The investor has said that he is betting on infrastructure companies because of increased government spending. Eisman stated that these companies specialize in road construction, factory building and automation.
© Gold Coast News HQ - All rights reserved.