Watchdog on alert after Volkswagen shares plunge• Mystery of frenzy over Europe's largest carmaker
• Porsche denies it manipulated marketDavid Gow The Guardian, Thursday October 30 2008 Article historyGermany's financial services authority, BaFin, launched a formal investigation yesterday into alleged market manipulation in Volkswagen shares after the carmaker's stock lost almost half its value.
VW shares slumped 45% to €517 after Porsche, a suspected villain behind frenzied trading in recent days, said it would offer up to 5% of the Volkswagen options it held.
VW, Europe's largest car manufacturer, briefly became the world's most valuable company on Tuesday when its stock peaked at €1,005, making it worth more than ExxonMobil at €296bn (£234bn). Yesterday its value dropped to €154bn.
BaFin, under immense political pressure and sustained attack from investors and analysts, acted as the weighty presence of VW in Germany's main index drove the Dax 30 down when other European indices such as the FTSE 100 soared.
Officials said there was no suspicion of market manipulation but the investigation would focus on what lay behind the recent volatile trading in VW shares.
The company's share price soared on Monday and Tuesday after Porsche declared overnight on Sunday that it controlled 74.1% of VW's equity directly or indirectly. It then had 31.6% of cash-settled options in its hands.
Yesterday the Stuttgart-based luxury sports car maker reiterated its stance that hedge funds that had engaged in huge bouts of short selling VW stock were responsible for the recent market distortions.
In a belated effort to calm the market and increase liquidity in VW's common stock, Porsche responded to allegations it had caused the panic buying by hedge funds by releasing a "small" amount of its options into the market.
Porsche, which has been increasingly reviled as a secret giant hedge fund that had outsmarted the genuine funds, insisted it was acting to bring trading in VW shares back to normal levels, rather than to cash in. It stands accused of controlling the market in VW by lending some of its Volkswagen options to traders betting on a slump, watching them sell it back to itself, then buy them back and finally return them at inflated prices.
The company, which plans to take over more than 50% of VW next month, stands by its goal of securing 75% in 2009.
Some analysts estimate that Porsche, which can legally convert its options at a strike price of about €100, rather than the current €500-plus, could make up to €6bn from selling 5% of its options. Last year it made about €1bn from selling cars, including to hedge fund managers, and €3.6bn from trading in derivatives.
Some hedge funds, meanwhile, played down reports that they had lost billions of euros - up to €30bn in total - after shorting VW shares. Marshall Wace, based in Charing Cross, London, denied a report in the German financial daily Handelsblatt cited by the Guardian that it had lost €5bn. It described its losses as "immaterial" - understood to be closer to €5m.
Other funds refused to comment on reports that they could face ruin after the past month of financial turmoil.
With Frankfurt's reputation as a financial centre on the rack, the Deutsche Börse moved to reduce VW's weight in the Dax from 27% to 10% from next Monday.
Under market rules VW can be removed from the index if the free float in its shares falls below 5%. This week, though 13% of VW options were on loan, its tradable shares fell only to 5.8%.
guardian.co.uk |
