Paulson Still Betting Big on Bank of America

Prior to 2008, when the recession began wreaking havoc on the US financial sector, John Paulson was widely considered one of the world’s top investors, and Bank of America was by far the biggest bank in the US. Both of those facts have changed now, however, as Bank of America has fallen behind JP Morgan Chase in terms of assets and Paulson has been one of the worst performing hedge fund managers this year, with his fund losing more than 30 percent of its value, largely due to the poor performance of Bank of America shares.

Despite the massive losses, Paulson is still remarkably bullish on Bank of America, increasing his $30 billion stake in the firm by 6.6 percent in the third quarter, according to regulatory filings. With 65 million shares, and options for 35 million more, Paulson’s stake in Bank of America is the fourth-largest holding in his hedge fund, behind the stakes in Alcoa, mortgage insurer PMI Group and MGM Resorts.

And Paulson’s belief in BoA doesn’t necessarily transfer over to other large banks, as he reduced his stake in Citigroup by 22 percent last quarter and sold his entire stake in JP Morgan Chase, though he is hanging onto options for more JP Morgan shares. Hedge funds with sizable stakes in the financial sector, like Paulson’s, have been battered this year as concern over the banks’ exposure to European debt has rattled investors. Bank of America shares have lost 55 percent year-to-date, while Citigroup has fallen 40 percent and JP Morgan Chase has lost 22 percent. Paulson, meanwhile, is one of just a few hedge funds left that are continuing to bet on a turnaround of BoA’s fortunes.