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John Paulson's Hedge Fund Buys $2.7 Billion Stake in BofA

Wednesday, 12 Aug 2009 | 6:30 PM ET

Hedge fund manager John Paulson, who earned a fortune by betting against financial companies after foreseeing the credit crisis, bought a $2.7 billion stake in Bank of America and took stakes in other lenders during the second quarter, according to a regulatory filing.

Paulson & Co, which has vaulted to the top ranks of hedge fund managers after two standout years, disclosed on Wednesday that it held 168 million Bank of America shares worth $2.22 billion as of June 30. At today's price, that stake is valued at about $2.7 billion.

Bank of America rose in after-hours trading after closing at $15.93 a share.

It's not known why Paulson was making the move, or any other details of the purchase. The stake makes him BofA's fourth-largest shareholder. The New York fund manager did not report any BofA stake at the end of March.

Paulson's investment moves are closely watched by investors after he predicted the implosion of mortgage prices in 2007 and then the collapse of banks in 2008.

During the first quarter, his aggressive moves into shares of gold miners and the SPDR Gold Trust exchange traded fund were interpreted as reflecting worries about rising inflation.

Now recent public disclosures indicate Paulson expects banks and other financial companies to rebound.

He joined a group of investors earlier this year in acquiring the failed lender IndyMac Bancorp.

Paulson also bought 14.9 million shares of Capital One Financial , giving his firm 17 million shares of that bank, according to the regulatory filing.

Paulson also reported new holdings in other national and regional banks, including 35 million shares of Regions Financial , 2 million shares of Goldman Sachs Group, 1.5 million shares of State Street and 5 million shares of Fifth Third Bancorp shares.

Paulson & Co also reported increased stakes in gold miners AngloGold Ashanti and Gold Fields. The firm also sharply increased its stake in drugmaker Schering Plough to 55.1 million shares on June 30 from 9 million at the end of March.

It's unclear what Paulson's investment means forBank of America, which has been embroiled in controversy since it acquired Merrill Lynch last year during the height of the financial crisis.

The Securities and Exchange Commission recently accused BofA of making false and misleading statements to investors about bonuses at Merrill Lynchbefore the brokerage giant was aquired. BofA settled the civil suit for $33 million, but a judge has since delayed that settlement.

BofA recently restructured its top management, including hiring former Citigroup CFO Sallie Krawcheck, as a prelude to finding a successor for CEO Ken Lewis. The controversy over Merrill Lynch has prompted widespread speculation that Lewis may eventually be replaced.

—Reuters contributed to this report

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