Excerpts taken from a NY Post article,
"Philip Falcone, of New York-based Harbinger Capital, rang up the incredible profit by shorting a whopping 117 million Wachovia shares at $30 back in May after his top analyst and investment chief pointed out problems with the Charlotte, N.C.-based bank's mega-billion dollar Option ARM loan portfolio.
The mortgages were defaulting at a fast rate which could make them worth only pennies on the dollar by year's end, the analyst's research revealed, according to sources at Harbinger. In addition, Wachovia would be socked with sky-high capital costs related to $40 billion of debt maturing in the fourth quarter, the sources added.
The super-profitable trade will remind some of Falcone's move earlier this year in the iron-ore sector - he made a huge profit when Cleveland Cliffs stock doubled on huge demand for the mineral.
Falcone has proven time and again that he can spot opportunity before the market sees it and gets in when the value, or lack of it, isn't yet priced into the stock.
In an interview with the Wall Street Journal last week about the health of his fund Falcone noted: "While we've taken our risk down, our portfolio is still well positioned to profit in the months ahead."
How well positioned it was is now known. The profitable trade will help offset what has been a tough quarter for Harbinger.
When the ban on short sales of hundreds of financial stocks took effect Sept. 18 it was a game changer for Falcone, who had successfully been betting on more then one troubled bank stock falling - Harbinger Capital fell 5.5 percent that day, possibly the firm's biggest one-day drop ever.
"It was ugly, but we survived," Falcone said in a text message that day to The Post."
We recently detailed Harbinger Capital's portfolio holdings from their most recent 13F filing. Although the information is interesting, do consider that the 13F is a lagging indicator and as noted in the interview, Harbinger has made adjustments to their portfolio since.
You can read the entire NY Post article here.