Big Short’s Eisman Says U.S. Bank Outlook Is Best Since 1990s

It will be easier for active managers and long-short managers to outperform amid higher rates, Eisman says.

Steve Eisman, the Neuberger Berman Group fund manager who featured in Michael Lewis’s book “The Big Short,” is bullish on U.S. banks.

“I have not been this positive on banks since the 1990s," Eisman said in an interview with Bloomberg Television, citing higher interest rates and deregulation. The money manager, who famously predicted the collapse of subprime mortgages before the financial crisis, doesn’t see systemic risks at present.

JPMorgan Chase & Co. has already boosted its outlook for profits in the coming years from rising benchmark rates and accelerating loan growth. Banks have also been bolstered by tax cuts -- the six biggest U.S. banks estimated last month that the reductions could boost annual profits by more than $10 billion.

Eisman’s optimism doesn’t extend to European lenders.

U.S. banks “were forced to clean their balance sheets rapidly and bring leverage down rapidly,” he said. “The Europeans are taking a much slower -- I think wrong -- attitude, and are still constrained by leverage and will be for years."

The return of volatility brought about by higher interest rates mean managers should be able to “construct a portfolio that produces alpha more easily than in the past,” Eisman said, adding that investors will be less forgiving of mistakes and pressure on fees will continue.

— With assistance by Francine Lacqua, and Tom Keene

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