Steve Eisman’s short call on Canada’s major banks is being met with criticism as analysts and money managers – and banks themselves – take aim at key points of his investment thesis.

Eisman, the money manager who infamously bet against the U.S. housing market and became a key subject in Michael Lewis’ bestselling book The Big Short, blasted Canadian bank CEOs in an interview with BNN Bloomberg Tuesday, calling them “ill-prepared” for credit losses. He also said he doesn’t know if any of the chief executives have seen a full credit cycle during their tenures.  

Eisman, who is short Royal Bank of Canada, Canadian Imperial Bank of Commerce and Laurentian Bank of Canada, also said he could see stock prices dropping “20 per cent plus.”

Here are some of the counterarguments being made against Eisman’s short call:  

“I worked with [Eisman] when I was an analyst in New York during the The Big Short, during that whole period of time. I was one of many, but I was one of the analysts that was at a firm that was working with Steve on that whole thesis.”

What he said I would have enormous confidence in. Where I would personally pick it apart is it’s very hard to be short a structural theme like that, that has an oligopoly, has a supportive regulator…and basically a captive audience in a way that allows him to have pricing pressures. On the credit side, I think he’s bang on.

Cameron Hurst, chief investment officer, Equium Capital Management

“I would say I don’t know if there’s any basis in fact for [the statement that Canadian bank CEOs don’t know what a credit cycle looks like]. At the end of the day, I’m not the oldest person and I’ve seen three credit cycles … The idea that these bank executives have never seen a credit cycle or that the Canada banks' management teams are somewhat naïve or have not experienced any sort of turbulence is a very tough argument to make.”

Rob Wessel, managing partner, Hamilton Capital Partners

“Short thesis talking points range from unreasonable to nonsensical. Although we are not particularly bullish on Canadian banks in the near-term, as outlined in a recent report, we are not anticipating a massive sector meltdown either.”

Gabriel Dechaine, banking analyst, National Bank Financial
 

 

“I just don’t think there’s any real catalyst to cause this to be a massive short. I think the Canadian banks could underperform because there’s no growth there.”

Greg Taylor, chief investment officer, Purpose Investments

“Eisman’s thesis makes sense. Absolutely. If Canada heads into a recession, the banks will have to have these loan losses and that will hurt earnings. But that hasn’t been the case in 10 years.”

Barry Schwartz, chief investment officer and portfolio manager, Baskin Wealth Management

“I think banks are strong. I think, especially Canadian banks, have a lot of resiliency and in our case in particular, have a great credit history of being able to withstand any economic cycle.”

Francois Desjardins, president and chief executive officer, CEO, Laurentian Bank