Tilson Turns Bearish on Banks

About two months after turning bullish on some financials, Whitney Tilson — who predicted the housing bust and financial crisis — is now taking profits on some of his bank bets and predicting that more financial troubles are on the way.

“There will be a headwind of continued losses for the better part of five years” with banks facing more losses on residential and commercial real estate, Tilson told Reuters, estimating additional losses of more than $1 trillion. Reuters adds that Tilson and Glenn Tongue, his partner at T2 Partners, have stopped their move into the U.S. mortgage bond market. Tilson said financial firms’ balance sheets will remain under pressure as the housing market problems and credit crunch lead to more loan defaults.

“Tilson said T2 is booking profits in Wells Fargo and American Express, shares that have more than doubled since March,” Reuters’ Al Yoon reported. “The fund will continue to hold the two financial companies, while betting against Bank of America, which is more exposed to a downturn.”

Tilson is also shorting homebuilders Centex and Pulte Homes because there is “virtually no need” for their product for years, Tilson said. And he really likes bets that will profit when stocks drop, “especially MBIA Inc., the bond insurer he writes is so underreserved for losses that it will be seized and placed in runoff this year,” Yoon reports.

So far this year, T2′s main fund is up 17%. It also handily beat the market last year, limiting losses to 18% while the S&P 500 plunged 38%.