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Updated to reflect analyst commentary and share prices
NEW YORK (
Warren Buffett's buy and hold bank investing strategy has lost at least one follower: Hedge fund magnate John Paulson, who turned corporate raider in a proposed split of
Hartford Financial Services (HIG - Get Report).
For Buffett, recent buyback and dividend boost announcements by
Wells Fargo(WFC - Get Report),
U.S. Bancorp(USB) and
SunTrust(STI) have paid off again and again. But after liquidating stakes in
Bank of America(BAC - Get Report), Wells Fargo and
Citigroup(C) ahead of a 2012 share surge, Paulson's activism on a large Hartford Financial Services holding reveals his impatience with the sector and his focus on getting returns fast.
John Paulson's flagship hedge fund was reportedly down 51% in 2011
On Wednesday, Hartford Financial Services said it will look to sell pieces of its life-insurance unit and stop selling some annuity products, in a move that may appease the demands of the company's largest shareholder, struggling hedge fund magnate and gold bug
That sale plan was seen as a concession to Paulson and other frustrated investors, which may pave the way for an eventual split by Wells Fargo analyst John Hall in a Wednesday note. "While these actions fall short of a full split of the company's non-life and life operations, we think they will position the Hartford to better pursue a split in the future."
After taking the single largest stake in the insurance conglomerate with an over 8% holding, Paulson called for Hartford Financial Services to consider a spinoff of some businesses in a
Valentines Day breakup letter, after agitating for change on the company's fourth quarter earnings call.
Instead, it appears Paulson will get a possible sale of some insurance units to help realize the company's asset values. Those businesses include the company's Individual Life, Woodbury Financial Services and Retirement Plans businesses, Hartford Financial Services said in a press release. "The actions announced today will allow us to build on our strong financial foundation by concentrating our resources on a smaller number of businesses to position The Hartford for long-term success," said The Hartford's CFO Christopher J. Swift.
"We see this as a positive development for shareholders in that it opens up more options as it relates to deleveraging, share repurchase, or potential legal separation down the road," wrote Credit Suisse analyst Thomas Gallagher. He estimates that Hartford Financial's plan could free up as much as $4 billion in capital.
In the short term the sale plan may put a dent into Hartford's earnings per share, noted JPMorgan analyst Jimmy S. Bhullar. "While these actions are incrementally positive, they do not alter our view on the stock."
Overall, analysts give Hartford Financial Services shares a price target of $26.46, according to consensus estimates compiled by
Bloomberg. Those analysts give Hartford Financial Services nine "buy" ratings, eight "holds" and one "sell."
For Paulson and Hartford Financial Services, the insurance unit sales may provide relief after a disastrous 2011.
Overall, 2011 was a brutal year for Hartford Financial Services. The insurance company's stock fell nearly 40% on waning profitability and a drop in revenue. The company's net income fell over 60%, while sales fell over 2%. In early trading, Hartford Financial shares rose over 2% to $22.19 in late afternoon trading, adding to a 33%-plus 2012 surge. Still, shares are off nearly 15% in the past 12 months.
2011 was even more missable. His flagship Advantage fund dropped 51% in 2011, according to
Bloomberg reports after a bet on financials panned. By comparison, Paulson's Advantage Plus fund jumped 164% in 2007 on a timely mortgage short.
Timing may be a problem for Paulson in 2012 after he
threw in the towel on his biggest bank holdings such as Bank of America, Citigroup, Wells Fargo, SunTrust and
Regions Financial (RF) in the fourth quarter of 2011. Each of those banks have added to late 2011 gains with an over 25% year-to-date stock surge, on expectations for improving earnings, lower legal liabilities and buyback and dividend increases in the wake of the
Federal Reserve'sstress test results.
Paulson's two largest holdings are tied to gold, however he also counts
Delphi Automotive (DLPH), Hartford Financial,
Anadarko Petroleum(APC) and
Capital One Financial(COF) as his largest corporate holdings, according to filings with the
Securities and Exchange Commission compiled by
Bloomberg. Overall Hartford Financial is Paulson's fifth largest investment after paring his bank holdings.
While Wednesday news signals that Paulson may start winning his Hartford Financial Services investment battle, the hedge fund investor immortalized in Michael Lewis's
The Big Short for his subprime bet may be losing the investment war to Buffett's long-term investing math.