Hedge Funds Investing in Banks
Hedge Funds Investing in BofA and other BanksBank of America's stock has steadily climbed in the last six months from under $4 in the beginning of March to just above $17 today. Hedge funds are betting big on this bank, JP Morgan and others.
20 top hedge funds have increased their holdings in financial institutions in the second quarter of 2009 signaling confidence in the troubled banking industry and a hope that banks will generate long-term profits to shareholders. With low stock prices, banks are seen as a safe investment as hedge fund managers do not expect share prices to fall any lower than they already have.
The following chart illustrates the rise in Bank of America (BAC) stock price in the last six months (click to enlarge):
John Paulson's hedge fund has led the charge by investing long in Bank of America, buying up 168 million shares. CitiGroup is apparently too risky of a bank to invest in or there is not enough profit-potential to entice hedge funds, as several top hedge funds dropped holdings in Citi.
The group of 30 hedge funds in the analysis increased their exposure to the financial sector by 56 percent to $59.5 billion in the second quarter compared to the first.
Filings showed at least five of the top funds bought into Bank of America, led by Paulson's purchase of 168 million shares. Shumway Capital Partners, run by Tiger Management alum Chris Shumway, bought 24.1 million shares and Timothy Barakett's Atticus Capital bought 26.9 million.Hedge funds are probably looking for companies that are strong in traditional lending roles instead of former profit centers such as structured debt, said Nadia Papagiannis, an analyst at Morningstar in Chicago. Analysts cautioned that revelations in public filings probably do not tell the whole story. For example, the 30 hedge funds included in the analysis dropped 44.8 million shares of Citigroup Inc (C.N), more than in any other company last quarter, the filings show. Source
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