Posted on 10/27/2008 9:25:23 PM PDT by bruinbirdman
Volkswagen’s shares more than doubled on Monday after Porsche moved to cement its control of Europe’s biggest carmaker and hedge funds, rushing to cover short positions, were forced to buy stock from a shrinking pool of shares in free float.
VW shares rose 147 per cent after Porsche unexpectedly disclosed that through the use of derivatives it had increased its stake in VW from 35 to 74.1 per cent, sparking outcry among investors, analysts and corporate governance experts.
Max Warburton, analyst at Sanford Bernstein, said it had brought the German market into disrepute. “It is a huge question for regulators and arguably an embarrassment for all European capital markets.”
Christian Strenger, a board member at Germany’s largest fund manager, DWS, and a leading corporate governance expert, said: “It should get the politicians and supervisory authorities to think again about allowing this untransparent situation.”
Porsche revealed on Sunday that it held 31.5 per cent in derivatives in VW. Bafin, Germany’s financial regulator, recently ruled that companies were not obliged to disclose such positions where the derivatives were settled into cash rather than shares.
But the sudden disclosure meant there was a free float of only 5.8 per cent – the state of Lower Saxony owns 20.1 per cent – sparking panic among hedge funds. Many had bet on VW’s share price falling and the rise on Monday led to estimated losses among them of €10bn-€15bn ($12.5bn-$18.8bn).
“This was supposed to be a very low-risk trade and it’s a nuclear bomb which has gone off in people’s faces,” said one hedge fund manager.
As of last Thursday, according to consultancy Data Explorers, 12.9 per cent of VW’s shares were on loan for investors to go short and bet on them falling – the highest percentage of any German company.
Shares in VW closed up €309.15 at €520, giving it a market capitalisation of €153bn, more than all the other US and European carmakers put together.
Bafin said it had nothing to add to comments last week that it was looking at, but not formally investigating, the share price movements in VW.
But a Bafin official said the integrity of Germany’s capital markets was at stake, adding: “We have had lots of large institutional investors call us to discuss what is happening.”
Fahrphegploogin?
I'm not one to attack hedge fund managers/short sellers or call for more regulation of short selling and derivatives, but it sounds like Porsche basically beat them at their own game. I hope they're good sports about it.
Translation?
I have sooooo much sympathy for short-sellers (I really do, honest)
I wonder if they truly had the permission of the owners of those shares to do short selling.
So the Europeans will see the fruits of hedge funds in their stock market quotes tomorrow morning. I wonder if all the EU national financial leaders will want to meet with Bush to come up with a global strategy for dealing with an issue they don’t know how to combat?
Bailout?
Why not? Everybody else has their hand out.
or
Hoist meet Petard.
If they didn’t, you can bet they sure as hell do now. Holding a long position in something, then finding out Porsche owns 75%, and 95% of the shares are off the table, means you’re being paid rent on something a very strong company has taken a major stake in and there’s about to be a massive short squeeze.
This week, I am purchasing a '73 beetle with a modified Porsche engine in it.
It promises to be a fun car.
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