Warren Buffett Rests as John Paulson Digs In (Update 1)
Updated to reflect analyst commentary and share prices
NEW YORK ( TheStreet) -- Warren Buffett's buy and hold bank investing strategy has lost at least one follower: Hedge fund magnate John Paulson, who turned corporate raider in a proposed split of Hartford Financial Services (HIG) .
For Buffett, recent buyback and dividend boost announcements by Wells Fargo (WFC) , American Express (AXP) , U.S. Bancorp (USB) and SunTrust(STI) have paid off again and again. But after liquidating stakes in Bank of America (BAC) , Wells Fargo and Citigroup(C) ahead of a 2012 share surge, Paulson's activism on a large Hartford Financial Services holding reveals his impatience with the sector and his focus on getting returns fast.
|John Paulson's flagship hedge fund was reportedly down 51% in 2011|
On Wednesday, Hartford Financial Services said it will look to sell pieces of its life-insurance unit and stop selling some annuity products, in a move that may appease the demands of the company's largest shareholder, struggling hedge fund magnate and gold bug John Paulson .
That sale plan was seen as a concession to Paulson and other frustrated investors, which may pave the way for an eventual split by Wells Fargo analyst John Hall in a Wednesday note. "While these actions fall short of a full split of the company's non-life and life operations, we think they will position the Hartford to better pursue a split in the future."
After taking the single largest stake in the insurance conglomerate with an over 8% holding, Paulson called for Hartford Financial Services to consider a spinoff of some businesses in a Valentines Day breakup letter , after agitating for change on the company's fourth quarter earnings call.
Instead, it appears Paulson will get a possible sale of some insurance units to help realize the company's asset values. Those businesses include the company's Individual Life, Woodbury Financial Services and Retirement Plans businesses, Hartford Financial Services said in a press release. "The actions announced today will allow us to build on our strong financial foundation by concentrating our resources on a smaller number of businesses to position The Hartford for long-term success," said The Hartford's CFO Christopher J. Swift.
"We see this as a positive development for shareholders in that it opens up more options as it relates to deleveraging, share repurchase, or potential legal separation down the road," wrote Credit Suisse analyst Thomas Gallagher. He estimates that Hartford Financial's plan could free up as much as $4 billion in capital.
In the short term the sale plan may put a dent into Hartford's earnings per share, noted JPMorgan analyst Jimmy S. Bhullar. "While these actions are incrementally positive, they do not alter our view on the stock."
Overall, analysts give Hartford Financial Services shares a price target of $26.46, according to consensus estimates compiled by Bloomberg. Those analysts give Hartford Financial Services nine "buy" ratings, eight "holds" and one "sell."