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NEW YORK (

TheStreet.com

) --

Citigroup

(C) - Get Citigroup Inc. Report

shares surged Thursday as much as 10% on furious trading after famed hedge fund manager John Paulson, who made a name for himself after betting on the housing meltdown, was said to be acquiring stock in the battered financial institution.

Hedge fund firm Paulson & Co. reportedly has bought up to a 2% stake in Citi in recent weeks, according to

The New York Post

, citing unnamed sources.

Sources apparently say that Paulson is buying shares of Citi on the belief that the company's assets are undervalued, according to the article. Paulson sees shares of Citi trading closer to its book value of $5 to $7 a share, the article adds.

A spokesman for Paulson declined to comment to

The Post

on the hedge-fund manager's investment activities.

Citi shares were most recently rising 8.4% to $5.02. While the stock touched the critical $5 mark earlier this week, Citi shares have not closed above $5 a share since mid-January.

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Citi shares have been rising since the completion of the exchange of $58 billion worth of preferred shares to common stock at the end of July. The exchange gave the U.S. government a 34% stake in the firm. Still, Paulson's bet is gutsy considering that the

Treasury Department

is unlikely to cede control of that stake anytime soon.

The company is still plagued by toxic assets, now held in its so-called "bad bank" unit, Citi Holdings. But in Citicorp, its so-called "good bank," Citi is also struggling from mortgage and credit card losses in its consumer loan portfolio.

Paulson

has also bought shares in other financial institutions, including

Bank of America

(BAC) - Get Bank of America Corp Report

,

Goldman Sachs

(GS) - Get Goldman Sachs Group, Inc. Report

and

Regions Financial

(RF) - Get Regions Financial Corporation Report

.

Written by Laurie Kulikowski in New York