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Steve Eisman of “The Big Short” fame believes Canadian banks are in trouble thanks to a sagging housing market and slow economy. The FT’s Richard Henderson and Lindsay Fortado report:
Steve Eisman, a portfolio manager at Neuberger Berman, is among a growing number of short-sellers taking positions in the likes of TD Bank and Royal Bank of Canada, in anticipation that the shares will fall. The moves come after property prices raced ahead of incomes for several years, boosted by loose lending, low interest rates and lax controls on foreign money. But new house prices in Canada slipped year on year in January for the first time since 2009, squeezed by tighter rules on mortgages and new taxes on foreign buyers, while the broader economy has begun to falter.
“I’m calling for a simple normalisation of credit that hasn’t happened in 20 years,” Mr Eisman told the FT, while declining to name the banks he is shorting, or the full extent of his positions. He said the effects would hurt banks and the real estate sector, but would not be as intense as the financial crisis a decade ago in the US, when he and others saw huge profits from the implosion of the subprime mortgage market.
“This is not ‘The Big Short: Canada’ — I’m not calling for a housing collapse,” he said.
Mr Eisman is not alone: collective wagers against Canadian banks have risen 19 per cent since the start of the year to positions worth US$12.3bn, according to S3 Partners, a data provider based in New York. The activity is largely driven by falls in the country’s property market after years of rapid growth, according to Ihor Dusaniwsky, managing director of predictive analytics at S3 Partners.
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Jeremy Jones, CFA
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