Events | 2009.12.22
Massive bet on RBS and Lloyds helped financier earn $2.5bn
A billion-dollar bet on Britain\'s state-supported Lloyds and RBS banking groups has helped a US hedge fund manager secure a personal payday of $2.5bn (£1.55bn), the Guardian has learned.
David Tepper, a former Goldman Sachs junk bond trader, has steered his New Jersey-based hedge fund, Appaloosa Management, to a $7bn profit so far this year by taking a sanguine view that banks caught up in the global credit crunch would eventually weather the worst financial storm since the second world war.
Tepper took large positions early this year in debt and equity issued by struggling Citigroup and Bank of America, which have since recovered from the brink of collapse to firmer footing. The Guardian has learned that Appaloosa also took a combined investment position of more than $1bn in Lloyds and RBS, which have undertaken massive fundraisings this year to bolster their balance sheets.
Appaloosa was a major participant in complex debt exchange offers executed by the two banks during 2009 to strengthen their balance sheets in the wake of bail-outs by the government. Tepper said he believed that Lloyds would ultimately emerge in a healthy condition. "With the recapitalisation of Lloyds, I think once again Lloyds will be one of the best banks in the world."
Tepper was named by the Wall Street Journal this week as one of the financial industry\'s biggest winners of the year, with likely year-end earnings of $2.5bn. An adrenaline-driven character who wears jeans and trainers to work, he keeps a pair of brass testicles on his desk, which he occasionally rubs for luck during the trading day.
Appaloosa operates from premises opposite a shopping centre in Short Hills, a New Jersey commuter town 25 miles outside Manhattan.
The fund began investing in shares and debt issued by American banks in February, when the US treasury secretary, Timothy Geithner, set out a financial stability plan intended to support ailing financial institutions. Scepticism about Geithner\'s approach sent Wall Street stocks tumbling but Tepper took a view that banks were oversold.
Since their low point in March, shares in Bank of America have quadrupled, while Citigroup\'s stock has tripled. Tepper said that at one point during the summer he had reaped $1bn of profits from these two banks alone, with overall gains across his fund of $4.5bn.
RBS has also clawed back ground, with its shares increasing in value sixfold from a nadir at the start of the year when it reported a massive loss of £28bn.
Hedge funds have come under political attack over the last 18 months over instances in which they took "short" positions to bet on the demise of already weak institutions.
One US hedge fund investor, John Paulson, caused controversy two years ago by making $3.7bn from a correct prediction that the US sub-prime mortgage industry would collapse, severely damaging banks. In the case of Appaloosa, however, insiders say that the fund has played a more constructive role by participating in the recapitalisation of damaged banks.
An accountant\'s son from Pittsburgh, Tepper, 52, was listed as one of America\'s richest people even before his latest coup. Forbes magazine recently estimated his wealth at $3bn, ranking him 97th in the US.
He is married with three children and once gave a multimillion dollar endowment to his alma mater, Pittsburgh\'s Carnegie Mellon University, which renamed its business school in his honour.
For more information, please visit
http://www.guardian.co.uk/business/2009/[...]-bet-rbs-lloyds-earns-billions
