John Paulson, the US hedge fund manager who made a fortune for his investors by anticipating the debacle in subprime mortgages, said yesterday it was too early to look for bargains in the financial sector and predicted the worst was yet to come for the UK housing market.

Paulson, who founded Paulson & Co 14 years ago and has $33bn in funds under management, said he was 'preparing to switch' to long positions on distressed mortgages and banks, but added that such a change could be months – or even a couple of years – away.

He said financial companies could wind up losing as much as $1,300bn in the credit crisis.

This is far more than the $945bn in losses predicted by the International Monetary Fund or the $380bn in writedowns already reported by banks.

'The housing market shows no signs of stabilising and the problems will spread to other areas, including non-residential construction and consumer spending,' Paulson said.

Financial Times

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