John Paulson's quarter-billion dollar payday from Bank of America

John Paulson, the hedge fund manager who made billions shorting subprime mortgages and financial stocks, established new long positions in banks and credit-sensitive stocks during the second quarter, SEC filings show. The Paulson & Co. hedge fund disclosed new holdings in Bank of America (BAC), Goldman Sachs (GS), and Regions Financial (RF), and dramatically raised its stakes in J.P. Morgan (JPM) and credit card company Capital One (COF).

Traders, reacting to the previously-prescient investment bets by Paulson, have bid up many of those companies' stock prices. Although the SEC filings capture only a point in time -- in this case, June 30 -- if Paulson & Co. maintained its positions, the hedge fund saw a nearly $300 million gain on its financial stocks in the last two days. Bank of America, Capital One, and Regions Financial accounted for the majority of the gains.

It's possible that Paulson & Co. no longer has as much exposure to financial stocks, and there's also a chance that there were hedges in place that lost value. The SEC does not require disclosing short positions in stocks or options, nor does the filing cover debt holdings. Previously, Paulson & Co. has said they are investing in distressed debt and targeting opportunities in the real estate market.

The investments were also disclosed as the FDIC seems poised to deal with the largest bank failure of 2009, and earnings filings suggest many major banks are undercapitalized or insolvent on a mark-to-market basis.

James Cullen edits and writes at He is the Vice-President of the Boston College Investment Club, which owns BAC, GS, and JPM, but has no personal position in the stocks mentioned above.

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