Soros, Chanos Blast Banks

Apr 14 2010 | 11:52am ET

Two top hedge fund managers piled on U.S. banks this week, with George Soros and James Chanos offering pointed criticism.

Soros said yesterday that the U.S. bank “oligopoly” needs to be broken up. The Soros Fund Management founder added that he backed the so-called Volcker Rule, which would ban banks from owning, operating or investing in hedge funds and private equity funds, as well as from proprietary trading, as well as putting limits on their size.

The four largest banks in the U.S. are an oligopoly that “does need to be broken up,” Soros told an Economist magazine event in London. Soros, a top donor to the U.S. Democratic Party, is the richest alternative investments titan in the world; his $25 billion hedge fund has about 6.6% of its assets invested in financials; Citigroup, one of the oligarchs, is its fifth-largest holding.

Meanwhile, Chanos is calling for an investigation of the banks, saying that their proprietary trading operations—and not hedge funds—were to blame for the financial crisis.

Kynikos Associates’ Chanos told PBS’ Charlie Rose this week that regulators need to have a look at the bank’s prop trading records from 2008 [See Full Transcript]. He said that banks were the largest buyers of credit-default swaps that year, not hedge funds.

“We need to find out because hedge funds and short sellers are being vilified and being pointed to as the cause or additive to the problem,” he said. “And, in fact, people like me were covering our financial shorts in 2008. We had put them on in 2005 and 2006.”

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