Big Short's Steve Eisman Is Shorting Two U.K. Banks on Brexit

(Bloomberg) -- Steve Eisman, the Neuberger Berman Group money manager who famously predicted the collapse of subprime mortgages before the 2008 financial crisis, is shorting two U.K. banks over expectations the country will leave the European Union without a deal.

The U.K. is one of the biggest risks Eisman is watching, he said at a conference in Dubai on Sunday, declining to name the banks he's betting against. The fund manager expects the U.K. government to agree its exit from the bloc, but said Parliament is likely to reject the deal after that.

“I'm shorting two stocks in the U.K., but I've got a screen of about 50, and I might short all 50 if I think Jeremy Corbyn is going to be prime minister,” Eisman said. “Corbyn's a Trotskyite. Now I know my Trotskyites well and I know you don't want to be invested in the U.K. if a Trotskyite is prime minister.”

While Eisman didn't give any clues as to which lenders he's targeting, Metro Bank Plc and CYBG Plc are the most shorted financials in the FTSE 350 Index, according to data from Markit. Metro has 7.9 percent of its outstanding shares shorted, double the ratio at CYBG.

Read more: Barclays Fares Worst in Europe Bank Stress Tests as Brexit Looms

Two weeks of strategic silence on the progress of Brexit talks appears set to end this week, amid signs U.K. and European Union negotiators are finally coming close to breaking the deadlock. Prime Minister Theresa May's Cabinet will discuss Brexit on Tuesday, and there were suggestions this weekend by members of her Conservative Party that she's preparing to give ministers an ultimatum to back a draft deal. Her spokesman, though, played down a Sunday Times report that an agreement with the EU was done.

Tesla Short

Eisman also said that he's still shorting Tesla Inc., even though the electric car-maker exceeded expectations in October, reporting its third quarter of positive earnings in its history.

Read more: Tesla Profit Blowout Reverses Much of Musk's Damage to Stock

Eisman has a history of shorting banks. In mid-October 2017, he recommended betting against Wells Fargo & Co. as it was suffering from the fallout over a fake accounts scandal. Since then shares have been little changed. In May Eisman reiterated the call but it's unclear if he still holds the position.

Eisman doesn't see any systemic problems such as subprime car loans and student debt. That's a reversal from March 2017, when he told Bloomberg TV that auto credit was a segment of banks' business that concerned him. The fund manager also said his largest long position is in Chicago-based wireless communications firm Motorola Solutions Inc.

While Eisman thinks the U.S. financial system is “very healthy,” he also sees economic growth slowing on the trade war.

Read More: Jeremy Corbyn ‘Dangerous to Big Fortunes,' Swiss Banker Says

“Areas of risk now are the global trade war that is currently happening, and that is without question caused recently a slowdown in U.S. growth,” he said. “I don't see a recession in the U.S. at all, but I do see growth being slow, barring reparations between the U.S. and China.”

Eisman's bets against the housing market before the 2008 crisis were chronicled in Michael Lewis's 2010 book “The Big Short,” which highlighted money managers who foresaw and profited from the market turmoil. A character based on him was played by Steve Carell in the movie of the same name.

--With assistance from James Ludden and Shelly Hagan.

To contact the reporter on this story: Matthew Martin in Dubai at mmartin128@bloomberg.net

To contact the editors responsible for this story: Stefania Bianchi at sbianchi10@bloomberg.net, Dana El Baltaji, Vincent Bielski

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