Paulson Buys, Buffett Sells in Duel on SunTrust Banks (Update1) By David Mildenberg
Feb. 17 (Bloomberg) -- John Paulson, who amassed a fortune by betting against U.S. mortgage markets, became the biggest stakeholder in SunTrust Banks Inc. while fellow billionaire Warren Buffett was cutting his stake in the Atlanta lender. Paulson & Co., the New York-based hedge fund, boosted its ownership to 6.1 percent of SunTrust's shares, federal filings showed yesterday. That gives his firm about 30.4 million SunTrust shares as of Dec. 31, an increase from 1.5 million on Sept. 30. Buffett's Berkshire Hathaway Inc. reduced its SunTrust holdings by 22 percent to 2.4 million shares. After making billions by foreseeing the collapse of the U.S. mortgage market in 2007 and 2008, Paulson placed bets last year on some of the banks hit hardest by slumping home prices, including Bank of America Corp., Citigroup Inc. and Wells Fargo & Co. SunTrust posted a $1.56 billion loss for 2009 as loans soured in the Southeast. Paulson also slashed holdings of Regions Financial Corp., a SunTrust rival. Paulson's purchases are probably more significant than Berkshire's sales "because of his more narrow focus on financial stocks," said Terrence McEvoy, a banking analyst at Oppenheimer & Co. in Portland, Maine who has an "outperform" rating on SunTrust. "Buffett is a phenomenal investor, obviously, but he invests in many different sectors." SunTrust represents about 3.1 percent of the $19.8 billion of holdings disclosed by Paulson in yesterday's federal filings; his firm manages about $32 billion overall. The bank has been reduced to less than half a percent of Berkshire's portfolio, based on filings by Buffett's Omaha, Nebraska-based firm. Bank of America SunTrust gained about 12 percent since the end of the fourth quarter, while Regions advanced more than 22 percent. Bank of America rose about 2 percent, while Citigroup and Wells Fargo dropped by the same amount. In today's trading, SunTrust was little changed at 10:14 a.m. in New York Stock Exchange composite transactions. Regions fell 1.4 percent to $6.53. Bank of America was the second-largest U.S. housing lender last year, edged out of first place by Wells Fargo. It remains the biggest by assets and deposits, and the second-biggest holding for Paulson valued at about $2.27 billion, based on the filing. The fund manager told investors in his newsletter last November that Bank of America's shares may rise to $29.81 by the end of 2011 as loan write-offs ease. Paulson owned 151 million shares of Bank of America at the end of the year, or 1.7 percent, after selling 8.7 million shares during the fourth quarter, his filing showed. Berkshire reported holdings of about 5 million shares last year. Wells Fargo As for Wells Fargo, Paulson bought 17.5 million shares of the San Francisco-based bank, according to the filing. That's not enough to dethrone Buffett as the biggest investor; he added more than 6 million shares to Berkshire's stake during the quarter and now owns about 320 million, or more than 6 percent. Last May, Buffett praised Wells Fargo because it "has a dramatically different business model" than its competitors. Paulson also increased its stake in Citigroup to about $506.7 million shares from 300 million at the end of the third quarter, filings show. Other buyers included David Tepper, who runs one of last year's top-performing hedge funds, and billionaire George Soros, separate filings showed. "When you look at the list of Buffett's banks, almost everybody has a sterling shine," said Jaime Peters, analyst at Morningstar Inc. By contrast, "Paulson sold one troubled bank to buy another." Both banks are well-capitalized according to U.S. standards, he said. Fairholme's Purchases Regions and SunTrust have been hobbled by losses stemming from loans to developers in Florida and Georgia, where housing price declines and the unemployment rate are among the highest in the U.S. Paulson's stake in Regions declined to 19 million shares from 35 million during the quarter, filings showed. Regions has its headquarters in Birmingham, Alabama, where it's the biggest bank based in the state. While Paulson sold Regions shares, Fairholme Capital Management LLC reported a 43.4 million stake, or 3.7 percent. The fund also bought more than 214 million shares of Citigroup. Fairholme is led by Bruce Berkowitz, named Morningstar's mutual fund manager of the decade for his $11.2 billion Fairholme Fund. Paulson spokesman Armel Leslie, SunTrust'S Barry Koling and Tim Deighton at Regions declined comment. Buffett didn't respond to a request for comment sent to an assistant after normal business hours yesterday.
