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Lansdowne Reaps 6.9 Million-Pound Profit Shorting Prudential

Date: Monday, June 7, 2010
Author: Bloomberg

Lansdowne Partners LP, a London-based hedge fund that bet as much as 213 million pounds ($312 million) that Prudential Plc’s shares would fall, made a profit of about 6.9 million pounds as the stock dropped.

The $15 billion hedge fund, which held a short position of as much as 1.46 percent of Prudential, started betting against the insurer on April 16, six weeks after Prudential announced a $35.5 billion offer for AIA Group Ltd., regulatory filings show. In a short sale, investors borrow shares from others, then sell them and hope to buy later at a lower price, pocketing the difference.

The fund would have made as much as 29 million pounds if the trade had been closed on May 21 when the shares tumbled to a low of 496.8 pence, more than a week before investors rejected the takeover, sparking a rally in the stock.

Lansdowne has yet to close the position. The shares closed yesterday at 565.5 pence in London trading.

Tom Murray, a Lansdowne spokesman, declined to comment.

Lansdowne’s profit on the trade was calculated using the highest stock price on the day the fund said it borrowed and sold the stock. The lowest share price was used when the fund said it would have bought back the stock to close the bet. That means the Lansdowne’s gain on the trade may have been smaller than 6.9 million pounds.

About 12.6 percent of Prudential’s stock was on loan as of June 1, indicating short sellers expect the shares will fall, according to figures from Data Explorers, a London and New York- based research company. That’s an increase from about 1.35 percent of the insurer’s stock being on loan when the deal was announced on March 1.