US hedge fund Paulson books £270m profit on RBS slump

This'll infuriate the Treasury Select Committee: Paulson made a small fortune by shorting RBS stock...

Last Updated: 31 Aug 2010

US hedge fund Paulson & Co has made a profit of at least £270m by short-selling RBS shares in the last few months, it emerged today. During a period in which shareholders have seen the ailing UK bank shed another few billion pounds in value, Paulson managed to book a huge profit by betting that the share price would keep falling. On the day that the Treasury Select Committee is meeting in Westminster to grill some leading hedge fund managers about their contribution to the recent chaos, we suspect this might catapult the issue of short-selling to the top of the agenda...

The galling thing for RBS shareholders (i.e. most of us) is that Paulson made all this money during a period in which short-selling was banned – but because the position was already in place, it was allowed to keep it. As the RBS share price continued to plummet (not least after admitting to a potential £28bn loss) Paulson’s profits mounted up – so when it came to close the position on Friday (i.e. bought the shares it had originally borrowed), it booked a profit of at least £270m (possibly more, if it held the position before the disclosure rules kicked in last September). And to add insult to injury, Paulson (and other funds) have also made a fast buck by shorting Barclays and Lloyds stock since the ban was lifted...

All of which means that the hedge fund contingent (which includes the secretive Chris Hohn, head of The Children’s Investment Fund – a lot less cuddly than it sounds) are going to get a serious grilling from the Treasury Select Committee today. The hedgies will argue that there's nothing wrong with short-selling per se – indeed, in a properly functioning market, it has an important role to play in limiting excessive stock market rises. On the other hand this isn't a properly functioning market – it wouldn’t exactly have taken Warren Buffett to predict a fall in banking stocks when the Government announced additional bailout efforts. And since they're basically making these big gains at the taxpayers' expense, we're not unsympathetic to the view that the short-selling ban was lifted too early.

Still, at least Paulson et al are technically doing their job, i.e. making money for investors. It’s even harder to feel sympathy for the likes of ex-Merrill boss John Thain, with his $1.2m office refurb, or former Lehman boss Dick Fuld, who’s apparently just sold his $14m Florida mansion to his wife for a measly $100 (which we’re sure is not because he wants to protect it from future lawsuits). It’s all going to increase the general ill-feeling towards the finance industry...

In today's bulletin:
US hedge fund Paulson books £270m profit on RBS slump
NHS IT system on critical list
No news is bad news, says Sarkozy
Online networking for cautious candidates
McDonald's to open 1,000 new stores

Find this article useful?

Get more great articles like this in your inbox every lunchtime

Reopening: Your duty is not to the economy, it’s to your staff

Managers are on shaky ground if they think they can decide for people what constitutes...

How COVID changes the world forever: A thought experiment

Silicon Valley ‘oracle’ Tim O’Reilly imagines how different sectors could emerge from the pandemic.

The CEO's guide to switching off

Too much hard work is counterproductive. Here four leaders share how they ease the pressure....

What Lego robots can teach us about motivating teams

People crave meaningful work, yet managers can so easily make it all seem futile.

What went wrong at Debenhams?

There are lessons in the high street store's sorry story.

How to find the right mentor or executive coach

One minute briefing: McDonald’s UK CEO Paul Pomroy.