Eisman Places a Bet on Turkish Contagion to European Lenders

(Bloomberg) -- Steve Eisman, who predicted the collapse of subprime mortgages before the 2008 financial crisis, is betting that Turkey’s economic troubles will also be a drag on two major European banks, Spain’s Banco Bilbao Vizcaya Argentaria SA and Italy’s UniCredit SpA.

“Everybody likes me to call the next disaster," Eisman said in an interview with Bloomberg Television, before being asked about pockets of risk where he sees opportunities.

“There’s Turkey, which obviously everybody knows about and this is not necessarily a systemic problem, but you know there are two banks in Europe that have a fairly large exposures to Turkey, those are BBVA and UniCredit," he said. “So, I’m short those two."

BBVA is the largest shareholder in Turkiye Garanti Bankasi AS, Turkey’s biggest lender by market value. UniCredit is a partial owner of Yapi & Kredi Bankasi AS, or Yapi Kredi.

Debt Problems

Banking shares in Turkey have already dropped 33 percent this year on concerns about slowing economic growth, deteriorating asset quality, a wave of debt-restructuring requests from foreign debt-laden companies, and the possibility of sanctions from the U.S., which could cut off much of the vital financing Turkey needs to fund one of the world’s largest current-account deficits.

Short-sellers make money by borrowing shares on the expectation that they’ll decline in value, and then selling the borrowed shares on the market. If the shares fall, the short-seller then buys an equal number back from the market, returns them to the lender and pockets the difference in value.

Garanti reversed earlier gains and was down 0.4 percent at 6.88 liras per share as of 3:12 p.m. in Istanbul, while Yapi Kredi fell as much as 1.4 percent to 2.05 liras. BBVA rose more than 2 percent in Madrid, and UniCredit was up 1 percent in Milan.

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