Paulson & Co, the hedge fund run by billionaire John Paulson, may have made £311 million ($428 million) since September by short selling Lloyds Banking Group Plc and HBOS Plc.
The firm took short positions in London-based Lloyds and HBOS that were valued at £367 million in September, based on the holdings and share prices on the dates they were reported. The stake fell below the reporting threshold on March 9, regulatory filings show.
Paulson, which made $3 billion anticipating the US housing market would collapse, profited as Lloyds, HBOS and Royal Bank of Scotland Group Plc sought bailouts from British taxpayers. Lloyds surrendered control to the government on March 7 in exchange for asset guarantees. Paulson made least £295 million shorting RBS, bringing its profit from betting UK banking stocks would drop to £606 million, according to earlier disclosures.
“They have called the market right,” Leigh Goodwin, a financial analyst at Fox-Pitt Kelton Ltd in London, said of Paulson’s firm. “They obviously have decided that the downside is limited, so there is not a great benefit from here on in holding that position.”
Armel Leslie, a spokesman for New York-based Paulson & Co, declined to comment.
Betting On Subprime
Paulson’s Credit Opportunities Fund soared almost sixfold in 2007 on bets that subprime mortgages would plummet. Last year, his flagship fund returned 37 per cent, compared with a loss of 19 per cent for hedge funds on average.
Short sellers sell borrowed shares with plans to buy them back later at a lower price. The Financial Services Authority, the UK market regulator, lifted a ban on short-selling financial companies on January 16. The restrictions were imposed in September as politicians and investors blamed hedge funds for destabilizing markets.
Paulson had a short position of 1.76 per cent in Lloyds TSB Bank Plc on September 23, when the stock traded for 261.75 pence, the firm said in a regulatory statement. It held a 0.95 per cent position in HBOS on September 19, when it traded for 216.83 pence.
Those positions were converted into a 0.79 percent stake in Lloyds Banking Group after the banks merged in January, according to regulatory filings. That holding was valued at about £56 million on March 9, when Lloyds closed at 43.7 pence.
Paulson, which oversees about $30 billion, has held a short position of 1.17 percent in Barclays Plc, the UK’s third- biggest bank, since October 30, according to regulatory filings. Barclays has fallen 67 percent since that date.
Government Bailout
Prime Minister Gordon Brown’s government has taken control of four British banks since the run on Northern Rock Plc in September 2007 as it seeks to boost lending and stimulate economic growth.
Lloyds agreed to buy HBOS in September in a government- brokered deal that saddled it with risky loans and investments that slashed profit and forced it to turn to the government for capital and asset guarantees. Edinburgh-based RBS joined the asset insurance program last month. Barclays, based in London, says it is evaluating the benefits of the plan.
Hedge funds are private, largely unregulated pools of capital whose managers can bet on falling as well as rising asset prices, and participate substantially in profits from money invested.
