City profiles

Steve Eisman The Wall Street outsider, who shot to fame as the subject of the Oscar-winning movie The Big Short, saw the last crash coming and profited hugely from it, says Patrick Collinson in The Guardian. So what does Steven Eisman think is the next Big Short? No question, he says, “Europe is screwed. You guys are still screwed.” And most screwed of all are continental European banks – especially Italy’s. The problem, he says, is that they are stuffed with “nonperforming loans” (NPLS), where the borrower has fallen behind with repayments. Eisman reckons many of these are worth just 20% of their original price. Yet if the banks recognised their true value, it would wipe out their capital and they’d go bust overnight.

In The Big Short, Eisman’s team head to Florida to hunt down the owners of properties behind Aaa-rated “mortgaged-backed securities”. They find “strippers with loans against multiple homes but almost no income”. This time, he won’t be padding around northern Italy, because, he says, the evidence “is in plain sight”. In July, when official “stress tests” found that Italy’s third-largest bank, Monte dei Paschi di Siena, was the weakest in Europe, it triggered a rescue package and soothing words from Italy’s finance minister. Given an estimated s360bn of bad debts still in the system, Eisman isn’t reassured. The disarray in bond markets sparked by Donald Trump’s victory heightens the risk, he warns. “What is very negative is that in every country in Europe, the largest owner of that country’s sovereign bonds are that country’s banks.”