While many investors are leaving Bank of America and Citigroup for dead, hedge fund legend John Paulson is building big positions in the beleaguered giants.
He also is making an investment that more matches conventional wisdom, buying gold-related assets.
Regulatory filings show that Paulson’s firm Paulson & Co. owned 160 million shares of Bank of America as of Sept. 30.
That stake is worth $2.6 billion.
Paulson also bought 300 million shares of Citigroup in the third quarter, a holding worth $1.3 billion.
In a letter to investors obtained by Bloomberg, Paulson predicted that Bank of America’s stock will almost double in the next two years, as earnings improve.
“Banks will have passed the current write-down cycle and have visibility for growth in 2012,” the letter said.
While Paulson was building up stakes in what most experts view as the weakest of large U.S. banks, he was dumping the two seen as strongest.
Paulson sold its entire stake in Goldman Sachs during the third quarter and cut a position in JPMorgan Chase.
As for gold, Paulson is opening a fund to purchase gold mining shares and gold derivatives, three of the firm’s investors told The Wall Street Journal.
The fund will officially begin Jan. 1, and Paulson will put up to $250 million of his own money in it.
The firm already has more than 10 percent of its $30 billion in assets allocated to gold related investments, investors told The Journal.
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