'Big Short' Investor Eisman Warns JPMorgan, Wells Fargo Domination Squeezes Regional Banks

Steve Eisman, the investor widely known for his role in shorting the subprime mortgage market before the 2008 financial crisis, says the U.S. banking landscape is increasingly consolidating into the hands of a few large banks.

What Happened: Speaking on a financial podcast on Monday, Eisman highlighted the growing concentration of deposits among major institutions like JPMorgan JPM and Wells Fargo WFC, which he said are steadily dominating the American banking sector.

Eisman noted that JPMorgan's share of U.S. deposits has risen from 7% in 2007 to nearly 14% today.

"There are a couple of reasons for that," Eisman said.

He pointed to the high costs of regulation and rapidly increasing technology expenses as key drivers that favor large banks.

According to Eisman, these factors make it difficult for smaller and mid-sized banks to compete.

"If we do nothing, and we keep the current policies, and there's no M&A wave, what's going to happen is JPMorgan, Wells Fargo, and a handful of others will continue to take market share," Eisman said.

He explained that, under this scenario, smaller regional banks could gradually lose competitiveness, leaving a system dominated by a few megabanks and some small community banks.

"I would like more [banks], I don't want to be Canada, where it's basically a cartel," Eisman said, referring to Canada's highly concentrated banking system.

He stressed that the U.S. should encourage mergers among regional banks like Comerica and U.S. Bank to ensure they can afford the scale and technology necessary to remain viable.

Eisman emphasized that large banks' ability to absorb compliance and technology costs gives them a structural advantage. Without regional consolidation, Eisman said, "the other regional banks are going to wither on the vine."

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Why It Matters: On the broader financial sector, Eisman expressed positive views on large-cap banks like JPMorgan, Goldman Sachs, and Morgan Stanley in the absence of a trade war.

He said these firms are well-positioned to benefit from deregulation, a recovery in IPO activity, and increased M&A transactions.

Eisman advised focusing on firms like Visa V and Mastercard MA within the payments sector and said he prefers to avoid other payment companies, which he described as "all going after each other's space."

On smaller banks, Eisman said he currently does not own any regional bank stocks but suggested there could be an opportunity if policy shifts enable consolidation.

Eisman's commentary also touched on the historical trajectory of the U.S. financial system post-crisis.

He explained that after the passage of Dodd-Frank, significant deleveraging took place across major banks.

He pointed out that Citigroup's leverage ratio dropped from 35:1 to 10:1 between 2011 and 2016.

"Your return on equity is going down" when leverage declines to that extent, Eisman said, underscoring why financial stocks have not delivered sustained outperformance in the post-crisis era.

Eisman stressed that structural changes, rather than isolated stock-specific events, are driving the industry's evolution.

He noted that if consolidation among mid-sized banks does not happen, large banks are likely to continue increasing their dominance, reshaping the competitive dynamics of U.S. banking.

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