As big banks JPMorgan Chase & Co. JPM, Citigroup, Inc. C and Wells Fargo & Co. WFC herald the start of the bank earnings season, a big short investor reiterated his bearish stance on the sector.
What Happened: Banks continue to be uninvestable, said Steve Eisman, portfolio manager at Neuberger Berman, in an interview with CNBC on Tuesday. Interest margins are well under pressure, there are about two trillion in excess deposits in the system, he noted.
The analyst also sees regulators clamping down by way of increasing the capital requirements of the banks instead of improving the liquidity of mid- and small-cap banks.
This will likely hurt these banks next year, he said. On top of these is the specter of a recession setting in next year, he added.
The only reason to invest in banks is that they are cheap, Eisman said. But he cautioned that “investing in something just because it’s cheap is a value trap.”
The Invesco KBW Bank ETF KBWB, an exchange-traded fund that tracks the performance of the KBW Nasadaq Bank Index, rose 1.64% to $40.18 in premarket trading on Thursday.
See Also: Best Financial Services Stocks
Sectors To Avoid. Eisman said any sector of the economy that is involved with consumer buying, something that also requires it to be financed has problems.
He said he would not buy homebuilders now as the stocks have had a great run and the homebuilders are subsidizing their customers, which would come back to bite them.
The portfolio manager also ruled out buying building product stocks, especially the ones of companies exposed to residential construction. Companies financing new cars or used cars etc. would also be in trouble, he added.
Read Next: Q3 Financials Sector Earnings Outlook: Tough Times Continue For Bank Stocks But Some Signs Of Life
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