NEW YORK ( TheStreet) -- David Tepper, who managed some of the best-performing hedge funds last year, boosted his Citigroup ( C) holdings and initiated a position in Wells Fargo ( WFC) 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, Palamino and Thoroughbred onshore and offshore -- rose at least 84% each.

Shares of Citigroup, Wells Fargo and Bank of America ( BAC) 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 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), online brokerage E*Trade ( ETFC) and regional banks Fifth Third Bancorp ( FITB) and SunTrust Banks ( STI) were unchanged. He cut his position in BB&T ( BBT).

He doubled his stake in commercial real estate financier Gramercy Capital ( GKK) and added 1.4 million shares of the insurer Hartford Financial Services ( HIG).

Tepper also started new positions in several airlines. He bought 2.6 million shares of US Airways ( LCC), 3 million shares of Delta Air Lines ( DAL) and 3 million shares of UAL ( UAUA), 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.