US hedge fund manager John Paulson, whose company made triple digit returns last year by betting against sub-prime instruments, said last night he “empathised with financial firms” in dire straits, before revealing his own positions in four major UK banks are short, so he would profit if their shares fall.

Paulson added in a regulatory statement: “Our short positions are taken on a passive basis—the success of which will be determined by the merits of the particular company.”