While catching up on what the billionaire hedge fund managers have been up to, I came across billionaire Louis Bacon’s $15 billion hedge fund, Moore Capital. What’s most interesting is that he appears to be very bullish on the banking industry.
“As a speculator you must embrace disorder and chaos” – Louis Bacon
Bacon is doing just that, having a large portion of his portfolio, over 25% as of the end of 2012, invested in the once out of favor financial sector. What’s more is that his top ten picks are riddled with big name banks, having five of his top seven holdings concentrated in financials;
let’s check out some of his biggest bets
on the industry.
Citigroup Inc. (NYSE:C)
is Bacon’s second largest holding. Although Citi’s 2012 revenue was down 10% year over year, its 4Q results showed positive signs. Loans were up 1.3% year over year for the quarter, and revenue up 3.3%. The bank also generated some $1.33 billion in income from continuing operations during 4Q 2012, which was up 34% year over year.
What’s more is that all its major geographical regions saw growth in operating income: North America up 121% year over year, Asia up 16%, Latin America up 16% and Europe, the Middle East and Asia up 6%.
The bank’s big “win” for the quarter (4Q), was net interest margin rose to 2.93%, compared to 2.86% during the third quarter. As well, the Federal Reserve “stress tests” put Citigroup Inc. (NYSE:C
)’s Tier 1 common ratio as high as 8.3% by the end of 2014, well above requirements. I continue to believe that Citi is the best bank
in the industry.
Bank of America Corp (NYSE:BAC)
was one of Bacon’s biggest increases last quarter, upping his stake 100% and now is his third largest holding. Bank of America and Citi took some of the biggest hits during the financial crisis, with both still down 68% (Bank of America) and 80% (Citi) over the last five years, compared to Wells Fargo & Co (NYSE:WFC)
, up 14%, and JPMorgan Chase & Co. (NYSE:JPM)
up 3%, over the same time period.
By price to book standards, Bank of America Corp (NYSE:BAC
) trades at only 0.6 times, versus the industry average of 1.1 times. The bank also has a rapidly improving balance sheet. At the end of last quarter, the company’s Tier 1 common capital ratio (Basel 1) was 11.06%, compared to 9.86% for the same quarter last year.
The bank also continues to show resilience as investors stick with the company; its up nearly 5% year to date despite fourth quarter results that showed revenue falling 20% and net income down 60% year over year.