Steve Eisman, portfolio manager, Neuberger Berman Group
The man who made his name by betting against the US housing market ahead of the subprime crash in 2008 now has Canada in his sites. Steve Eisman, whose hugely profitable short-selling was made famous by the Michael Lewis book (then film), The Big Short, is quick to tell the Financial Times that his bet against the Canadian market is not on the same scale as his historic short on the US. “This is not ‘The Big Short: Canada’. I’m not calling for a housing collapse.”
Yet even just “a simple normalisation of credit” will have a big impact on Canada’s banking sector, which has grown rather too used to soaring property prices. Like many stubbornly overpriced housing markets across the globe, Canada’s has finally started to crack, with prices falling year-on-year nationwide in January, for the first time since 2009. Eisman hasn’t singled out the specific “big six” Canadian banks he is shorting, but for now, the most popular target for short sellers is TD Bank, notes the FT. Others include CIBC and Bank of Montreal.
Eisman has been negative on Canadian banks for some time. As sceptical BMO economist Doug Porter tells Bloomberg, “we have heard this story many, many times before.” Yet Crescat Capital – one of the top hedge funds in the US last year – is also shorting the banks. Not only do they have to contend with falling house prices, notes the fund, but Canadian firms are among the most vulnerable to recession in the world, with most failing to make enough free cash flow to support themselves.