Forget Meredith Whitney, Paulson Loves American Banks

John Paulson told investors that there is still money to be made investing in banks. He sent out a letter to investors today with his latest market forecasts.

The hedge fund manager sees “‘big opportunities to wager on price discrepancies in banking stocks.’ The 139 per cent surge in financial sector stocks since March 9 has led to “inefficient valuations creating what we believe are opportunities on both the long and short side,” he said in his third-quarter letter to investors.”

Dealbook reports:

  • The firm re-opened its Merger Funds with $4 billion under management and hopes its newly increased stake in Cadbury (CBY), which is being courted by Kraft (KFT) and possibily Hershey’s (HSY) will continue the hedge fund’s successful streak in merger arbitrage. Paulson’s stake in both Wyeth and Pfizer paid off as spreads narrowed.
  • Bank of America, its largest bank investment, will double in 2 years
  • The firm’s stake in One West, formerly IndyMac (IDMCQ), is providing early gains and doing better than expected
  • He expects the firm’s plans to restructure over-leveraged banking sheets (CON, HEI) to be profitable
  • Paulson & Co is starting a new gold-only fund Jan 1st.

Paulson has been getting a lot of attention recently for his bullish stance on gold, which no doubt led him to open a new gold fund that will specialize in investing in gold derivatives. His declaration that BAC will double in two years shortly is also interesting. SAC Captial ditched 90% of their stock in the bank.

Read more here.

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