Paulson sold out of US banks ahead of 2012 rally

Hedge fund billionaire John Paulson sold out of Bank of America and Citigroup in the fourth quarter of 2011, missing the sharp rally enjoyed by bank shares year-to-date.

Paulson & Co's latest filing with the SEC revealed the manager disposed of 64.3m Bank of America shares and 25.1m Citi shares in the last three months of 2011.

Paulson started building his stakes in the pair in earnest in 2009, and the banks were two of his largest holdings last year.

The sales, which were accompanied by the divestment of a near-1m share position in BlackRock, mean Paulson has missed the 44% rise in Bank of America shares and 22% rise in Citi shares seen since the start of 2012.

Bank of America shares briefly moved as high as $7.43 in Q4 before dropping back sharply to close the year down at $5.56. But yesterday's closing price of $7.98 remains 7.4% above the October high.

The rally in Citi shares, however, has not yet seen the share price match its Q4 high of $34.40. However, yesterday's $32.08 closing price is some 50% higher than the $21.40 low point seen in Q4.

Bank of America shares fell by 58% over the course of 2011 as a whole, with Citi shares down by 44%.

Paulson's flagship Advantage Plus fund reportedly lost over 50% in 2011 as a result of his positions in financials and bets on the likes of Chinese forestry firm Sino-Forest, which saw its share price plunge following allegations of accounting fraud.

As well as reshuffling his gold miner and gold ETF holdings, Paulson also cut his position in Hartford Financial in Q4, selling 1.4m of the company's shares. Yesterday he submitted a filing with the SEC proposing a break-up of the US insurer.

The hedge fund manager appeared on Hartford's fourth-quarter earnings conference call earlier this month to tell the company it should do something "drastic" to boost its share price.