Wednesday, September 24, 2008

Paulson’s hedge fund targets UK banks

(FT) John Paulson, the New York-based hedge fund manager who made billions of dollars predicting the subprime implosion, emerged on Tuesday as the biggest short seller of British banks.

Mr Paulson, the founder of Paulson & Co, has bet against four of the five biggest British banks, according to filings made under a new regulatory regime on Tuesday.

Paulson took pre-emptive action to defend the short positions from what is likely to be a barrage of criticism from politicians and the popular media, saying the firm “empathises” with the tough position facing financial companies.

However, the scale of the positions taken by Paulson, including a £350m bet against shares in Barclays; £292m against Royal Bank of Scotland; and £260m against Lloyds TSB, is unlikely to mollify critics of short selling.

Among the disclosures of other short positions on British and Irish banks, Barclays Global Investors, part of Barclays, was revealed as a surprise holder of a £4m bet against the shares of St James’s Place, the wealth manager majority-owned by HBOS.

Short sellers aim to profit from falling prices, borrowing and selling shares in the hope of buying them back for less. Regulators have imposed restrictions on the practice around the world over the past week in an effort to stabilise markets, with the UK ruling that investors may not increase short positions.

The UK Financial Services Authority also demanded disclosure of shorts of more than 0.25 per cent of a company. In the US, hedge funds have managed to persuade their market regulator to delay a similar disclosure regime and are trying to get it scrapped.

Man Group, the biggest listed hedge fund manager, has asked the FSA to add it to the list of protected stocks, because it fears investors unable to short other financials are picking on it, according to people familiar with the talks. Man was opposed in principle to the list, they said.

Paulson said both its long and short positions were “based on extensive research on the company and its fundamentals, rather than short-term market movements”.

The FSA extended its list of protected stocks to cover Aberdeen Asset Management and F&C Asset Management. The New York Stock Exchange, which with Nasdaq was given authority for maintaining the US lists, added another 44 stocks.

New York-listed broker and asset manager JMP Group became the first company to opt out of the rules.

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