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NEW YORK (TheStreet) -- David Tepper, who managed some of the best-performing hedge funds last year, boosted his Citigroup (C) - Get Citigroup Inc. Report holdings and initiated a position in Wells Fargo (WFC) - Get Wells Fargo & Company Report during the fourth-quarter, when the banks' shares fell, according to a regulatory filing.

Tepper, who specializes in distressed debt, ranked in the top 1% of hedge fund managers in 2009. His four funds --

Appaloosa Investment





onshore and offshore -- rose at least 84% each.

Shares of Citigroup, Wells Fargo and

Bank of America

(BAC) - Get Bank of America Corp Report

dropped during the fourth quarter as the banks sold shares to raise enough capital to repay government bailout funds. Compensation outrage and the announcement of the so-called Volcker Rule, a proposal to limit banks' proprietary trading operations, have continued to batter financial stocks this year.

Tepper increased his Citigroup stake by 73% to 138 million shares since he last reported holdings in November. He started a new position in Wells Fargo, buying 11 million shares. Citigroup shares plunged 32% during the fourth quarter, while Wells Fargo's sank 4.2%. The

S&P 500 Financials Index

lost 3.7% during that period, as the

S&P 500 Index

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gained 5.5%.

Tepper reduced his Bank of America exposure by 4.7% to 32 million shares. However, Bank of America remains his top holding based on dollar value, followed by Citigroup.

Tepper's wagers on credit-card company

Capital One

(COF) - Get Capital One Financial Corporation Report

, online brokerage


(ETFC) - Get E*TRADE Financial Corporation Report

and regional banks

Fifth Third Bancorp

(FITB) - Get Fifth Third Bancorp Report


SunTrust Banks

(STI) - Get SunTrust Banks, Inc. Report

were unchanged. He cut his position in


(BBT) - Get BB&T Corporation Report


He doubled his stake in commercial real estate financier

Gramercy Capital


and added 1.4 million shares of the insurer

Hartford Financial Services

(HIG) - Get Hartford Financial Services Group, Inc. Report


Tepper also started new positions in several airlines. He bought 2.6 million shares of

US Airways


, 3 million shares of

Delta Air Lines

(DAL) - Get Delta Air Lines, Inc. Report

and 3 million shares of



, owner of United Air Lines.

Appaloosa remains heavily skewed toward financial stocks, devoting more than 80% of its common holdings to that sector. Tepper's bet on financials demonstrates confidence in the future profitability of the sector. That optimism may be tested if the Volcker Rule passes. These rules, proposed in January, would force Citigroup, Bank of America and Wells Fargo to dramatically change their operations and divest certain businesses, a process that could be costly to banks and devastating to Tepper's portfolio.

-- Reported by Jake Lynch in Boston.