Most important take away

The large banks’ Q1 2026 earnings reveal that credit quality across the U.S. economy remains benign — non-accruing consumer and commercial loans are not signaling a broader credit cycle despite fears stemming from troubled software exposure in private credit. As the banks go, so goes the economy: until bank credit quality deteriorates, Eisman does not see a recession on the horizon.

Chapter Summaries

1. Intro & Iran/Oil Update — U.S.–Iran talks fell apart over the weekend; the U.S. is blocking the Strait of Hormuz to apply economic pressure rather than resuming bombing. Oil briefly spiked above $100 before falling back, and markets rallied on hope of a settlement. S&P and Nasdaq have recovered their Q1 losses and are back at record highs.

2. Why Eisman Avoids Trading Ideas — Eisman is a long-term investor by nature, and tax friction (often 30%+) makes short-term trades far less attractive for most investors.

3. Bank Earnings as a Window into the Credit Cycle — JP Morgan, Citi, Wells Fargo, and Bank of America have the broadest lending exposure (consumer and commercial) in the economy. Their non-accruing loan data is the best real-time indicator of whether private-credit software problems are spreading.

4. Credit Data Is Benign — JPM total non-accruing loans of $9.6B (up 11% YoY but down 3% QoQ); BofA at $5.8B (down 4% YoY, flat QoQ). No sign of the pre-GFC style surge. Conclusion: no broad credit cycle yet, and no recession in sight as long as this holds.

5. Bank-Disclosed Private Credit Exposures — Wells $36B (17% software, $6B), JPM $50B, Citi $22B. Most loans have ~40% cushion via subordination. Wells has specific problems with Market Financial Solutions (fraud) and Go Easy (Canadian non-prime).

6. Individual Bank Earnings Rundown — Goldman (beat, 21% ROTCE, weak FICC, strange reaction); JPM (strong beat, 23% ROTCE, strong FICC +21%); Wells (NIM miss hurt the stock); Citi (beat, 13% ROTCE, strong operating leverage); Morgan Stanley (best-in-class 27% ROTCE); BofA (solid, ROTCE jumped from ~14% to 16%).

7. Valuation Framework — Capital-markets-heavy banks (Goldman ~3x, JPM ~3x, Morgan Stanley >3x TBV) trade at premium multiples because of higher, more durable ROTCE vs. lending-centric banks (Wells 1.8x, BofA 1.9x, Citi 1.3x). Lending is highly competitive and net interest margins have been in long-term decline.

8. Goldman & Citi Re-Ratings — Goldman has gone from a 1.3x TBV value stock to nearly 3x on capital-markets strength; buying now is a bet the good times continue. Citi under Jane Frazier has climbed from below 1x to 1.3x TBV — still a discount but moving in the right direction.

9. Mailbag — Regional banks (KRE) have little private-credit exposure — it’s concentrated in the ~32 largest banks; any losses likely hit income statements, not capital. Credit spreads widening reflects fear, not guaranteed losses, and new private-credit funds (Blackstone, Goldman $10B each) will benefit from higher yields without legacy bad loans. On AI/software: it’s too early to call the bottom; tread carefully for at least another year.

Summary

Actionable Insights

Headline thesis: Stay invested; no recession signal yet.

• The four largest U.S. banks are a concurrent indicator of the economy. Their Q1 2026 non-accruing loan data is benign on both a YoY and sequential basis — contradicting the narrative that private-credit software issues are metastasizing into a broad credit cycle. Until that changes, Eisman believes the U.S. economy is fine (though K-shaped) and a recession is not on the horizon.

Private credit / regional bank hedge question:

• Shorting the KRE regional bank ETF as a hedge against private-credit problems is NOT a good trade — regional banks have very little exposure. Exposure is concentrated in the ~32 largest banks (total NDFI business credit ~$335B, with private equity ~$315B).
• Even for large banks, Eisman believes losses — if they come — will be an income-statement event, not a systemic capital event, because banks are well capitalized and many private-credit loans are senior with ~40% subordination cushions.

Stocks mentioned and actionable read:

• JPMorgan (JPM) — Strong beat, 23% ROTCE, strong fixed income trading (+21% YoY), benign credit. Trades near 3x tangible book. Quality franchise; premium is earned.
• Morgan Stanley (MS) — “Best in class” quarter, 27% ROTCE (highest in industry), strong across underwriting/advisory/trading/wealth. Trades above 3x TBV; valuation reflects elite profitability.
• Goldman Sachs (GS) — Beat driven by advisory (+89%) and a one-time low 13% tax rate (normally 21%); fixed income weak (-10%). Stock fell on the print. Has re-rated from 1.3x to ~3x TBV over recent years — buying here is a bet the good-times environment persists, not a value play.
• Citigroup (C) — Beat with 13% ROTCE (best in years), strong trading/IB, good operating leverage, benign credit. At 1.3x TBV (was sub-1x). Turnaround under Jane Fraser is working — discount is narrowing and there may still be room to re-rate.
• Wells Fargo (WFC) — Missed on net interest income with a large 13 bp sequential NIM decline; stock was down on results. Lending-centric banks are most sensitive to NIM. Specific private-credit exposures include Market Financial Solutions (fraud) and Go Easy (troubled Canadian non-prime). Trades at ~1.8x TBV.
• Bank of America (BAC) — Solid quarter; ROTCE moved from a stuck ~14% to 16% (a positive inflection). Better than Wells but still below the capital-markets-heavy peers. ~1.9x TBV.

Valuation takeaway for investors:

• Higher ROTCE = higher price-to-tangible-book. Capital-markets-diversified banks (GS, JPM, MS) consistently deliver >20% ROTCE and therefore deserve ~3x TBV multiples. Pure lenders (WFC, BAC) structurally earn 14–16% because lending is ultra-competitive and NIMs have declined long-term. Do not expect Wells/BofA to compress the valuation gap without a meaningful shift in mix or margin.

High yield / credit spreads:

• Widening credit spreads reflect investor fear, not confirmed losses. New private-credit funds (Blackstone’s and Goldman’s $10B funds) should benefit from higher yields on NEW loans untainted by the software overhang — but these do not help existing investors in legacy private-credit funds.

AI / software sector:

• The AI threat to software (new entrants, in-house builds replacing vendors, pricing pressure) is real, but the story is far too early to call a bottom. Eisman advises treading carefully with the software group for at least another year. Trying to catch the bottom in a sector with this negative narrative is “brutal.”

Tax-aware trading reminder:

• For most investors, long-term holding beats short-term trading because a 30%+ tax drag means a trade has to be genuinely excellent to be worthwhile.

Bottom Line

The most important actionable insight: do not trade as if a recession or broad credit cycle is imminent. The best real-time indicator (big-bank credit quality) says it isn’t here yet. Favor high-ROTCE capital-markets banks (JPM, MS) for quality; view Citi as a still-discounted turnaround; be skeptical of Goldman as a value play at today’s multiple; recognize Wells and BofA as structurally lower-return franchises. Avoid shorting KRE as a private-credit hedge — the exposure isn’t there. Be patient and cautious on software until AI’s impact becomes clearer.