Back in November, when there was still some hope for an organized Brexit deal that didn't involve a "hard Brexit" and the current sheer chaos, speaking at a conference in Dubai on Sunday, "The Big Short's" Steve Eisman said that he is shorting two U.K. banks on expectations of a hard Brexit. Eisman said that the U.K. is one of the biggest risks Eisman is watching, and while he declined to name the two banks he is shorting, he said that he expects the U.K. government to agree its exit from the bloc, but that 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 hint which banks he’s targeting, Bloomberg notes citing Markit data that Metro Bank and CYBG are the most shorted financials in the FTSE 350 Index.
Fast forward to today, when the famous short-seller told Bloomberg that he has widened his "Brexit short", i.e., bets against U.K. banks, adding one more bank to his short bucket.
"Nobody has a freaking clue," said Eisman, who climbed to prominence when he correctly predicted, and profited, from the collapse of subprime mortgages before the 2008 financial crisis and which was later chronicled in both the book and movie The Big Short. "The situation is so fluid that it will be foolhardy to take a large position either way."
Eisman's short is similar to that of hedge fund manager Crispin Odey, an advocate for the U.K. leaving the EU, who last month renewed his short against the pound as lawmakers’ failed to agree on the divorce terms.
the UK is only a small part of Eisman's shorts: his bigger short bets are in Canada, where roughly a quarter of his fund’s capital is betting against financial firms on the prospect of mortgage portfolio losses. So far, his bearish trades have been successful: his strategy returned 11.4% from November 2016 to the end of last year, according to Bloomberg, outperforming equity hedge funds which returned 7.5% during this period.
Going back to Brexit, Eisman said PM Theresa May is unlikely to get any concessions from the EU that parliament would accept, and an extension of the March 29 deadline for Brexit is now a more likely scenario. “I suspect we will be talking about the Brexit at least through the summer,” he said, an outcome which he does not see as bullish.