By Andrew MacAskill
March 11 (Bloomberg) -- Paulson & Co., the hedge-fund firm that made more than $3 billion betting the U.S. housing market would collapse, may have made 311 million pounds ($428 million) since September by short selling Lloyds Banking Group Plc and HBOS Plc.
Paulson, run by billionaire John Paulson, took short positions in Lloyds and HBOS valued at about 367 million pounds in September, based on the holdings and share prices on the dates they were reported. The position equaled 0.79 percent of London-based Lloyds, or 129.1 million shares, after the banks merged and holdings were diluted by a government investment. That position was worth about 56 million pounds on March 9, when it fell below the reporting threshold.
Lloyds, which surrendered control to the government on March 7 in return for asset guarantees, is down 82 percent since Paulson first disclosed a short position in the bank. Paulson made at least 295 million pounds by shorting Royal Bank of Scotland Group Plc when the fund closed its position in the bank in January after five months.
“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.”
Paulson’s potential profit from shorting U.K. banks stands at 606 million pounds. Armel Leslie, a spokesman for New York- based Paulson & Co., declined to comment.
Lloyds closed at 43.7 pence a share on March 9, down 82 percent since Sept. 23, when Paulson’s short position peaked. Short sellers sell borrowed shares with plans to buy them back later at a lower price.
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 percent, compared with a loss of 19 percent for hedge funds on average.
Paulson, which oversees about $30 billion, has held a short position of 1.17 percent in Barclays Plc since Oct. 30, according to regulatory filings. Shares of the third-largest U.K. bank have fallen 67 percent since that date.
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, saddling it with risky loans and investments that slashed profit and forced it to turn to the government for capital and asset guarantees.
Ban Lifted
The Financial Services Authority, the U.K. market regulator, lifted a short-selling ban on financial companies on Jan. 16. The restrictions were imposed in September as politicians and investors blamed hedge funds for destabilizing markets.
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.
Paulson had a short position of 1.76 percent in Lloyds on Sept. 23, when the stock traded for 261.75 pence, the firm said in a regulatory statement. It held a 0.95 percent position in HBOS on Sept. 19, when the stock traded for 216.83 pence.
Paulson’s position in Lloyds Banking Group, created by the merger of the two banks, fell below the reporting threshold of 0.25 percent on March 9.
To contact the reporter on this story: Andrew MacAskill in London at amacaskill@bloomberg.net
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