John Paulson, the billionaire hedge fund manager who had his worst year on record in 2011, increased pressure on management of Hartford Financial Services Group Inc. and abandoned two stock bets on a U.S. recovery.
Paulson & Co. notified regulators Tuesday that it may talk with other Hartford shareholders to bolster the fund’s push to split up the 201-year-old insurer. In a separate filing, Paulson & Co. said it had sold its entire common-stock stakes in Citigroup Inc. and Bank of America Corp. as of Dec. 31.
“It seems that he’s been under immense pressure from investors to reduce his exposures,” said Vidak Radonjic, managing partner at Beryl Consulting Group LLC in Jersey City, N.J., which advises clients on investing in hedge funds.
Paulson & Co.’s Advantage Plus Fund lost 51% in 2011, and the firm said in a third-quarter letter that financial services companies were the “primary drag.” Mr. Paulson, 56, who made billions betting against the U.S. housing market in 2007, started aggressively building the stakes in New York-based Citigroup and Charlotte, N.C.-based Bank of America in 2009. Together, the two holdings were valued at more than $1 billion as of Sept. 30.
Mr. Paulson sharpened his focus on Hartford, where CEO Liam McGee has struggled to improve the company’s stock price through job cuts and asset sales. The two men clashed during a Feb. 8 conference call when Mr. McGee resisted Mr. Paulson’s assertion that Hartford would be worth more to shareholders if it were split into separate property-casualty and life insurance companies. Paulson & Co. holds an 8.4% Hartford stake.
“We have done exhaustive research on the challenges and opportunities of the Hartford and believe that a spinoff would produce an increase in value for Hartford shareholders,” Mr. Paulson said in a letter to Mr. McGee that the fund manager published in a statement.
Mr. Paulson published the letter after the close of regular trading on the New York Stock Exchange on Tuesday. Armel Leslie, a spokesman for Paulson & Co., declined to comment on the firm’s filings.
Paulson & Co., which is based in New York and manages about $24 billion, saw its weighting in financial services companies decline by 6.7%, the most of any industry group during the quarter, according to data compiled by Bloomberg. Paulson & Co. missed Citigroup’s 22% gain through Tuesday and Bank of America’s 44% surge.
Paulson & Co. cut 756,500 Bank of America warrants in the fourth quarter, leaving it with 31.6 million, according to the filing. Paulson & Co. reduced its investment in Hartford, which is based in Hartford, Conn., by 1.4 million shares, leaving it with 37.5 million.
“We recognize there are potential benefits to a separation,” Hartford said in a statement Tuesday. “While there are challenges to successfully executing a separation, we welcome Paulson’s views and look forward to continued dialogue with him and other shareholders.”
Mr. Paulson, who was successful in a 2009 campaign to push Dow Chemical Co. managers into completing a takeover of Rohm & Haas Co., said a separation could boost Hartford 40% to 60% from its “unaffected share price.” Hartford ended Feb. 7, the day before the conference call, at $19.12. Christopher Giovanni, a Goldman Sachs Group Inc. analyst, said in a Jan. 9 research report that a split could push the stock to $28.32.
“I just think it’s an oversimplification of a very complicated, complex process,” said Dan Theriault, an analyst at Portales Partners LLC. “While it looks good on paper, the devil’s in the details.”
Hartford, which fell 39% last year, is valued at less than half its book value. MetLife Inc., the biggest U.S. life insurer, trades at about 0.7 times book value, while the ratio for property-casualty provider Travelers Cos. is almost 1.
Paulson & Co. cut its stake in the SPDR Gold Trust exchange-traded fund, which is backed by the precious metal, to 17.3 million shares in the fourth quarter from 20.3 million at the end of the third quarter. Mr. Paulson uses the SPDR Gold Trust, his largest holding, for the fund’s gold-denominated share classes. The firm also trades bullion and gold derivatives, which aren’t included in its regulatory filings.
The firm also sold out of its 15 million shares of Hewlett-Packard Co., valued at $341 million, in the quarter.