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Why is George Soros staking a huge claim in AIG and Ally?

Bets on AIG, moves out of Visa, MasterCard

dart board

Soros Fund Management is putting a giant stake in the firm that received an $85 billion bailout during the financial crisis for insuring subprime mortgages.

International insurer American International Group is now the second-largest firm George Soros invests in, upping his investment from 45,000 shares on March 31 to approximately 1.8 million AIG shares by June 30, a position valued at $98.4 million, according to information from SNL Financial.

Essent Group (ESNT), another insurance underwriter, remains Soros’s top financial holding as of the second quarter. While AIG did not change its number of shares in Essent, due to a 10.55% decline in share price, the stake was valued at $151.7 million at June 30, down from $169.5 million at March 31.

Just last month, Soros was one of the four backers of an investment group, along with John Paulson, Michael Dell and Christopher Flowers who made more than $3 billion on a bet made on a failed lender during the depths of the financial crisis.

According to the Wall Street Journal, the investor’s 2009 purchase of OneWest Bank, formerly known as IndyMac Bank, will produce a return of 3.35 times its initial investment.

Citigroup agreed in July to acquire OneWest for $3.4 billion in cash and stock, the biggest announced bank takeover since 2012.

The investment group bought the bank in early 2009 for $1.55 billion. Including the dividends the group collected from OneWest's earnings in the years since, the investors are due to rake in more than $5 billion.

IndyMac, based in Pasadena, Calif., collapsed in the summer of 2008 as customers grew concerned about its souring mortgages and withdrew deposits. It was the third-largest bank failure in U.S. history.

And now, interestingly enough, in Soros’ most recent second quarter report, it initiated a position valued at $5 million in Citigroup (C), one quarter after exiting position in all four of the largest U.S. banks.

Insurance underwriters account for more than half of the dollar value of all of AIG’s financial institution holdings, with more than 16% of the firm's holdings in investment companies/finance REITs, and approximately 10% in financial technology companies.

But as Soros dives into insurance underwriters, he is pulling away from financial technology institutions like Visa (V) and MasterCard (MA), completely exiting his stake, which was valued at $32.4 million at March 31 and $18.7 million, respectively.  

Most notably, Soros’ largest new position was a stake in Ally Financial (ALLY), valued at $35.7 million at June 30. Ally officially underwent IPO during the second quarter after more than a year of preparation. (To see all articles on the history of Ally click here.)

The bank chose to exit the mortgage origination and servicing business in the second quarter of 2013, projecting to be mostly done with mortgages by the end of 2013.

Soros is a Hungary-born billionaire investor through his investment arm Soros Fund Management, and a leading donor to far left, progressive and internationalist causes. As a child, he served Nazi occupation forces in Hungary before fleeing to England to study at the London School of Economics.

He is known for currency speculation, breaking the bank of England in 1992, and his support for greater international political control of domestic economies. Forbes ranked him in 2014 as the 27th richest person in the world and the world's richest hedge-fund manager. With a net worth of $23 billion, Soros is listed as the 7th wealthiest American citizen.

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