In 1994, he founded his own hedge fund, Paulson & Co., with $2 million and one employee. Paulson & Co. Inc. is the manager of several hedge funds. Under his direction, Paulson & Co. has capitalized on the problems in the foreclosure and mortgage backed securities (MBS) markets. His firm had assets under management (as of June 1, 2007) of $12.5 billion (95% from institutions), which had jumped to $36 billion by November 2008. In 2007 alone his firm earned $15 billion.
On May 15, 2008, Paulson & Co., which bought 50 million shares of Yahoo (YHOO) stock during the first quarter of 2008, said it is supporting Carl Icahn on a proxy fight to replace Yahoo's board. In early 2008, the firm hired former Federal Reserve Chairman Alan Greenspan. In September 2008, Paulson bet against four of the five biggest British banks. His positions included a £350 million bet against shares in Barclays (JYN); £292 million against Royal Bank of Scotland (RBS); and £260 million against Lloyds TSB (LYG). His firm eventually booked a profit of as much as £280 million after reducing its short position in RBS in January 2009.
In December 2009, the New York Times reported that Paulson had profited during the financial crisis of 2007 by betting against synthetic collateralized debt obligations (CDOs). To help protect these bets, Paulson and others successfully prevented attempts to limit foreclosures and rework mortgage loans. In late 2008, he decided to start a new fund that would capitalize on Wall Street's capital problems by lending money to investment banks and other hedge funds currently feeling the pressure of the more than $345 billion of write downs resulting from under-performing assets linked to the housing market.
On August 12, 2009, Paulson purchased 2 million shares of Goldman Sachs as well as 35 million shares in Regions Financial. Paulson has also purchased shares in Bank of America (BAC), expecting the stock to double by 2011. After the 2007-9 stock market crash, Paulson's fund generated $1 billion betting on the recovery of Citigroup (C). John Paulson reportedly made $20 billion by anticipating the US housing market crash.
On February 22, 2010, Paulson's fund was linked to the restructuring and recapitalization of the publisher Houghton Mifflin Harcourt. Highlights of the agreement include a reduction in the senior debt to $3 billion from the current $5 billion, with new equity issued to the senior debt holders (including Paulson & Co., Guggenheim Partnersand others), conversion of the $2 billion mezzanine debt into equity and warrant, receipt of $650 million of new cash from the sale of new equity. According to The Irish Times, the investments by the current equity holders of EMPG, including HMH's CEO Barry O'Callaghan, private clients of Davy Stockbrokers, Reed Elsevier and others will see their investment of over $3.5 billion written down to zero.
On April 16, 2010, Paulson & Co. was mentioned by the U.S. Securities and Exchange Commission in court fillings when the SEC sued Goldman Sachs and one of Goldman's CDO traders. The SEC alleged that Goldman Sachs (GS) materially misstated and omitted facts in disclosure documents for a product it originated. The allegation was that Goldman Sachs had (mis)represented to its investors that an objective third party (ACA Management) had assembled the mortgage package underlying the CDOs when Paulson & Co., with economic interests directly adverse to investors, had had a major role in assembling the mortgage package. As counterparty in the CDO transaction, Paulson & Co. stood to reap great financial benefit in the event of default. (It's alleged that Paulson selected a portfolio of CDOs that were likely to default, against which Paulson & Co. had already sold short or would sell short.) Paulson & Co was not a defendant in the case.
John Paulson is #39 on the Forbes list of the world's wealthiest billionaires and is worth approximately $16 billion as of the 2011. On April 16, 2010, the New York Times reported Paulson had earned $1 billion in 2007, $2 billion in 2008, $2.3 billion in 2009and $5 billion in 2010 from fees received from his hedge fund by betting against subprime mortgages long before the term became well known.
Paulson's donation of $15 million to the Center for Responsible Lending is the largest contribution the non-profit received. The organization works to persuade banks to provide better mortgage terms to applicants with less than stellar credit.
Paulson has contributed more than $140,000 to political candidates and parties since 2000, 45% of which went to Republicans, 16% to Democratsand 36% to special interests.
This year, Paulson has been whacked in part by his big slugs of financial stocks such as Citigroup and Bank of America, whose share prices are down 16.5% and 19% respectively so far this year. Also, Paulson’s $9 billion Advantage Plus Fund has lost more than 19.5% this year.
The hedge fund also has suffered about $500 million in losses on its investment in Chinese and Canadian forestry company Sino-Forest Corp. or 14% or 34.7 million shares. Sino-Forest’s stock price has tumbled about 80% since late May amid allegations of questionable accounting, which the company has denied. On Monday, Paulson & Co. said it had sold its Sino-Forest shares “due to uncertainty” over the company’s “public disclosures and financial statements.” Ironically, Sino-Forest surged 51% on Wednesday, closing at C$3 in trading on the Toronto Stock Exchange.
Since November 2009 Paulson announced he was starting a gold fund focused on gold mining stocks and gold-related investments. He has told investors that he’s put a big chunk of his own money in the gold fund, as well as in various gold classes of his existing funds. Paulson has profited with a big wager on goldand through April his gold hedge fund was up 7.7% on the year, according to an investor.
Paulson & Co. held more than 41 million American depositary receipts of AngloGold Ashanti (AU), a South African gold mining company that is one of the biggest in Paulson’s portfolio and had a market value of $2.1 billion in May. Based on last Wednesday’s closing prices, the investment has lost $317 million in value since then.
Hedge fund manager John Paulson received a Securities and Futures Commission securities license in Hong Kong in February, joining other large hedge fund managers such as Soros Fund Management, GLG Partnersand Viking Global Investors in the territory. Hong Kong has become the top destination for hedge funds in Asia because of its proximity to China, strong legal infrastructure and friendly operating environment.
Paulson has lost a total of $634 Million from his Bank of America (BAC), Citigroup (C), Capital One (COF), Suntrust (STI), Wells Fargo (WFC)and JP Morgan (JPM) bets. Financial services have been the worst sector for stock picking this year — just 36% of stocks have topped the S&P 500, while big names like Wells Fargo & Co., Bank of America Corp. and Citigroup Inc. have dropped at least 10%. The two banks that were the largest recipients of TARP funds, Bank of America and Citigroup, have cut back on local lending by 94 percent and 64 percent, respectively. Even his gold investments totaled $283 million in losses due to losses in gold mining stocks.
He lost $184 Million in Transocean (RIG), $173 million in Anadarko Petroleum (APC)and these weren’t even frauds. Paulson’s billion dollar bet on Hewlett Packard (HPQ) contributed another $82 million to his losses.
Stocks That John Paulson Keeps Selling
No. 1: Citigroup Inc. (C), Weightings: 5.32% - 412,722,200 Shares
Citigroup Inc., the global financial services company, has some two hundred million customer accounts and does business in more than hundred countries, providing consumers, corporations, governmentsand institutions with a broad range of financial products and services, including consumer banking and credit, corporate and investment banking, securities brokerageand wealth management. Citigroup Inc. has a market cap of $124.61 billion; its shares were traded at around $42.88 with a P/E ratio of 13.8 and P/S ratio of 1.3. The dividend yield of Citigroup Inc. stocks is 0.1%. It has a five-year average dividend yield of 5.26% and revenues of $79.5 billion over the last fiscal year.
By itself, Citigroup is a worthwhile stock to consider based on its projected book value and token dividend. It has been recovering since announcing a 10-to-1 reverse stock split in March, a move that likely opened Citigroup up to more institutional buyers. Citigroup is rumored to be in talks with Leucadia National (LUK) and Centerbridge Capital over a sale of its OneMain consumer-financial services unit, formerly known as CitiFinancial. The deal could bring in as much as $1 billion for Citigroup.
Shares had another rise 3%, to close at $42.88, after the Wall Street Journal reported that the company had inked a deal to acquire a 9.9% stake in Horizon Securities Corp., a Vietnam-based brokerage firm. Citigroup was raised to buy with a $53 target at BofA/Merrill Lynch this week and the macro-events must have been perfectly timed for this. What is interesting is that this must have been a self-serving upgrade around the huge mortgage settlement that was also given an extra boost from the debit card swipe-fee being lifted from $0.12 to $0.21 on average.
In terms of management effectiveness, Citigroup is below industry averages when it comes to net profit margin and return on assets. Citigroup suffered drops in share value of over 20% since its high in late January. Citigroup is hovering at a level slightly below its book value currently. Currently selling at $38.30, Citigroup should probably be valued somewhere in the mid-$40 range. With earnings per share of 3.06 Citigroup definitely has room to grow in value.
Paulson & Co. told clients that the firm made more than $1 billion on its Citigroup Inc. investment since the middle of 2009. Citigroup was the fund’s most profitable bank holding last year, Paulson said in a letter to clients.
John Paulson owns 412,722,200 shares of C, valued as $1,824 million as of March 31, 2011, which accounts for 5.32% of his equity portfolio. He reduced his positions in the Dec. 31, 2010 quarter by 2.47%, again in the March 31, 2011 quarter by 0.19%. Paulson first bought this stock with high confidence by acquiring over 50 million shares in early 2010, but has stayed at about 42 million shares since mid to late 2010. Paulson seems stagnant at his current position.
No. 2: Bank Of America Corp. (BAC), Weightings: 4.81% - 123,634,429 Shares
Bank of America Corp. is one of the world's financial services companies. Bank Of America Corp. has a market cap of $112.36 billion; its shares were traded at around $11.09 with a P/E ratio of 14.9 and P/S ratio of 0.8. The dividend yield of Bank Of America Corp. stocks is 0.4%.
BAC is reportedly lagging behind its peers in the banking sector in its efforts to raise enough capital to meet the new Basel III reserve requirements. They announced they are exiting the reverse-mortgage business, as it has become too risky as home prices continue to fall.
BofA’s $14 billion mortgage securities-related settlement has put it at an early disadvantage to competitors. John Paulson is a major Bank of America (BAC) shareholder, pushed senior executives to fight investors' claims that the bank sold them toxic mortgage debt, which BofA ultimately settled Wednesday with an $8.5 billion pact. CEO Brian Moynihan's pledge last fall to fight investors with "hand-to-hand combat" was an attempt to placate Paulson and others, but management now believes settling the claims "will rejuvenate the company and put the worst of its crisis-era problems behind it." Paulson reportedly exited "a substantial portion" of his 124 million-share stake in BofA in the two months prior to the settlement. It isn't clear whether Mr. Paulson's view of a settlement changed in recent months as the pact broadened, but the Paulson spokesman said in a statement that "we believe it is a positive that Bank of America is seeking to put legacy mortgage issues behind it so that investors can focus on the power of future earnings."
Upside call buyers are active in Bank of America today. Shares are up 15 cents to $11.11 and are on pace for a 5.6% gain on the week. BAC is now 6.8% above the 52-week low of $10.4 set on 6/16. Recent options trades in the bank include a 12,881 contract block of Jan13 12.5 calls at $1.34 when the market was $1.32 to $1.34. 21,834 now traded. August 12 calls, which are 7.9% out-of-the-money, are the most actives. 28,734 contracts changed hands. Another 22,393 Jul 12 call options have also traded today. Now options volume in BAC is 175,000 calls and 56,000 puts.
Mr. Paulson, the bank's eighth-largest shareholder with 123,634,429 shares of BAC, valued as $1,648 million as of Mar. 31, 2011, which accounts for 4.81% of his equity portfolio. John Paulson reduced his positions in the Dec. 31, 2010 quarter by 10.11%, again in the Mar. 31, 2011 quarter by 0.18%. Paulson started to buy Citigroup since mid-2009 and have had of upwards of 167 million shares in the past compared to his lowest position now. His confidence in banks might be lower for now as he is selling both of his bank stocks, but his positions are still massive.
No. 3: Hartford Financial Svcs. (HIG), Weightings: 3.45% - 43,920,700 Shares
Hartford Financial Services is one of the nation's largest investment and insurance companies, offers a complete line of insurance and financial service products to customers all over the world. The company’s Property and Casualty Commercial segment provides workers’ compensation, property, automobile, marine, livestock, liabilityand umbrella coverages, as well as customized insurance products and risk management services, including professional liability, fidelity, surety, specialty casualty coveragesand third-party administrator services. Hartford Financial Svcs. has a market cap of $12.04 billion; its shares were traded at around $27.05 with a P/E ratio of 5.8 and P/S ratio of 0.5. The dividend yield of Hartford Financial Svcs. stocks is 1.6%.
Hartford goes for under 7 times this year’s estimated EPS and around 6.5 times 2012’s consensus. HIG has absolutely hammered earnings estimates the last three quarters. The stock now is in the bottom quarter of its five-year valuation range based on P/B, P/E and P/CF. It yields 1.6% after doubling its dividend payment recently. It still pays out less than 20% of its pre-crisis dividend payout. HIG shares have fallen with the markets and also due to concerns about policies they have in Japan. The 50 day moving average is $27.17 and the 200 day moving average is $25.77. Earnings estimates for HIG are $3.80 per share in 2011. HIG pays a dividend of about 40 cents per share, which is equivalent to a yield of about 1.5%. S&P predicts average annual earnings growth of 17% over the next three years. HIG currently sells for $26.37. S&P has a price target of $34 on Hartford and FBR Capital just raised its price target to $35.
In the insurance sector, some competitors that focus more on the property and casualty sector of insurance have already recovered to above the pre-financial crisis levels. Both Travelers Companies (TRV) and Chubb Corporation (CB) recently hit all-time highs while Allstate (ALL) and Hartford Financial Services (HIG) are trading significantly below 2006/2007 highs even though the companies both compete in the property and casualty sectors as well.
Hartford has a price to earnings ratio of 7.5 and a net margin of 8.2%. Hartford saw a slight decrease in revenue from quarter 1 of 2011 to quarter 1 of 2010. In quarter 1 of 2010, revenue was $6.319 billion and in quarter 1 of 2011, revenue came in at $6.308 billion. With estimated 2011 revenue of $23.7B. This did not stop net income jumping from $319 million to $511 million. HIG has a strong cash position with $5.20 billion in levered free cash flow. Hartford also announced that it will sell a small Florida bank, which it bought to qualify for TARP, in accordance with new regulation under the Dodd-Frank bill.
John Paulson owns 43,920,700 shares of HIG, valued as $1,183 million as of Mar. 31, 2011, which accounts for 3.45% of his equity portfolio. John Paulson reduced his positions in the Dec. 31, 2010 quarter by 0.11%, again in the Mar. 31, 2011 quarter by 0.07%. Paulson bought this stock in late 2009 with a low 2.75 million share position, but he suddenly increased to 44 million shares in mid-2010. Paulson selling seems insignificant both in quantity and because of projections.
No. 4: Kinross Gold Corp. (KGC), Weightings: 0.87% - 19,000,000 Shares
Kinross Gold Corporation is an entrepreneurial mining company which has become a million-ounce gold producer. Kinross Gold Corp. has a market cap of $17.94 billion; its shares were traded at around $15.79 with a P/E ratio of 25.6 and P/S ratio of 5.9. The dividend yield of Kinross Gold Corp. stocks is 0.7%. Kinross Gold Corp. had an annual average earnings growth of 10.9% over the past 10 years. KGC has lost 14.8% since the end of March 2009, underperforming the SPY by a large margin and lost 8.39% over the last year.
Kinross Gold Corporation announced on 14 June that it has subscribed for 625,000 units of Edgewater pursuant to a private placement.
Following the Kinross (KGC) buyout of Red Back Mining in 2010, Kinross soon announced it could optimize Tasiast to produce 1.5m oz. annually by 2015 or 30k attributable to Franco(nearly 3x that initially estimated).
Kinross (KGC) has been significantly underperforming gold over the past three years and are not near their pre-credit price levels in 2008. It has not provided any leverage to the price of gold to their shareholders. Investors are sticking to the bullion ETFs and are disinterested in the miners. This lack of interest in this sector signals we still have some way to go in this precious metals bull market.
John Paulson owns 19,000,000 shares of KGC, valued as $299 million as of Mar. 31, 2011, which accounts for 0.87% of his equity portfolio. John Paulson reduced his positions in the Dec. 31, 2010 quarter by 41.22%, again in the Mar. 31, 2011 quarter by 2.46%. Paulson has bought this stock since 2007 with fairly consistent holdings except for doubling in position at the end of 2007 and a massive selling of 50% of holdings at the end of 2010. Right now, his position is still consistent.
No. 5: Boston Scientific Corp. (BSX), Weightings: 0.31% - 15,000,000 Shares
Boston Scientific Corporation is a worldwide developer, manufacturer and marketer of minimally invasive medical devices. Boston Scientific Corp. has a market cap of $11.05 billion; its shares were traded at around $7.23 with a P/E ratio of 13.9 and P/S ratio of 1.4. Boston Scientific Corp. had an annual average earnings growth of 2.1% over the past 10 years. Over the last 30 days, the current year EPS consensus has increased by 25.81% (from $0.31 to $0.39), while price decreased by 3.53% (from $7.08 to $6.83). The stock has gained 8.83% over the last year.
Boston Scientific Corporation is supposed to be a winner from J&J's stent exit but this company remains in perpetual turnaround mode. Its corporate credit rating is now positive, implying that its Ba1 rating could be moved to Baa3 or better and that would make it investment grade again.
John Paulson owns 15,000,000 shares of BSX, valued as $108 million as of Mar. 31, 2011, which accounts for 0.31% of his equity portfolio. John Paulson reduced his positions in the Dec. 31, 2010 quarter by 68.75%, again in the Mar. 31, 2011 quarter by 40%. Paulson started to buy this stock in mid-2006 with slightly over 13 million shares then increased over the years to over 99 million shares which he help for all of 2009. Since 2010 Paulson has been selling this stockand it does seem like this is the only stock he could sell out on.
Also check out the Undervalued Stocks, Top Growth Companiesand High Yield stocks of John Paulson.