Steve Eisman, the investor who called and profited from the subprime mortgage crisis, said Thursday that he’s staying away from bank stocks due to risks from crimped margins and tougher regulations. “I happen to think the whole bank sector is uninvestable,” Eisman, senior portfolio manager at Neuberger Berman, said on CNBC’s ” Squawk Box. ” The first reason for Eisman’s bearish thesis is the continuous deposit outflows. Uncertainty caused by the collapse of Silicon Valley Bank earlier this year triggered outflows at other regional banks and larger institutions. “The deposits in the banking industry is still $2 trillion above trend. It’s still going to come out … it’s going to come out faster. So the idea that that interest margins are gonna bottom anytime soon, I just think is wrong,” Eisman said. A bank’s net interest margin is a key figure for the industry, measuring the difference it pays account holders from what it earns making loans. With short-term rates spiking higher than long-term rates, bank margins have been hurt. Investors have been hoping that would change soon, but the so-called yield curve has stayed inverted despite the Federal Reserve’s best efforts. Banks are also feeling pressure to raise rates it pays on deposits in order to keep their depositors from jumping ship. The SPDR S & P Regional Banking ETF , which tracks 140 regional banks, has fallen more than 33% this year. Secondly, the widely followed investor said the new regulations in place to raise debt levels are not helping the situation. Last month, regulators unveiled plans to force American banks with at least $100 billion in assets to issue debt and bolster their so-called living wills, in a move to protect the public in the event of more failures. “The new regulations that have come out, to increase the amount of capital that the banks have, which I actually think is the wrong thing that the regulators are doing,” Eisman said. “They should be focusing on raising liquidity requirements by the mid cap and small cap banks but they’re doing the opposite.” Eisman shot to fame by betting against subprime mortgage loans before the 2008 financial crisis, as chronicled in Michael Lewis’ “The Big Short,” and the subsequent Oscar-winning movie based on the book. In terms of the areas he likes, the investor said he’s betting on infrastructure companies on the back of increased government spending. Eisman said these companies are specialized in road building, factory building, automation and reshoring.
‘Big Short’ investor Steve Eisman says the whole bank sector is ‘uninvestable’
