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VW shares halve as Porsche eases short squeeze
(Have any of you followed the Volkswagen share price lately? TT)
VW shares halve as Porsche eases short squeeze
FRANKFURT (Reuters) - Shares in carmaker Volkswagen (VOWG.DE: Quote, Profile, Research, Stock Buzz) nearly halved on Wednesday after controlling shareholder Porsche (PSHG_p.DE: Quote, Profile, Research, Stock Buzz) took steps to ease a squeeze on shortsellers who more than quadrupled the price of the stock in days.
Porsche itself prompted the meteoric rise in VW stock with its announcement on Sunday that it had effective control of 74.1 percent of VW, leaving less than 6 percent tradeable in the market.
Hedge fund manager David Einhorn's Greenlight Capital suffered heavy losses from a VW trade as a result, people familiar with his portfolio said on Tuesday.
"In order to avoid further market distortions and the resulting consequences for those involved, Porsche SE intends... to settle hedging transactions in the amount of up to 5 percent of the Volkswagen ordinary shares," Porsche said in a statement.
The stampede to cover open short positions after Sunday's announcement vaulted VW's market value to 278 billion euros ($348 billion) and its shares to a record close of 945 euros on Tuesday.
Investors cried foul, and German securities watchdog BaFin said it would take a closer look at Porsche's dealings for signs of insider trading and market manipulation, but the company said again on Wednesday it had done nothing wrong.
Analysts at Commerzbank and Merck Finck estimated Porsche's strike price on its cash-settled hedges were around 100 euros per share, meaning Porsche could make 5.9 billion euros from selling 5 percent of its call options at a price of 500 euros.
Although it stands to gain more than the value of all of its listed preferred shares put together, a Porsche spokesman denied speculation it wanted to "cash in" with the deal.
Nevertheless analysts believe Porsche can raise its direct stake in VW of 42.6 percent to 75 percent in part through the windfall profits the short squeeze offers.
Once there, Porsche plans to submit VW to a domination agreement, granting it full control over such prize assets as Audi (NSUG.DE: Quote, Profile, Research, Stock Buzz).
Volkswagen's premium brand underlined its importance to the group, bucking the sector trend for declining earnings and boosting operating profit by almost 14 percent to 2 billion euros in the first nine months.
Shortsellers who rushed to close their positions after Porsche's announcement on Sunday were paying virtually any price to get their hands on the few remaining shares, even though Porsche insisted its announcement would allow short sellers to unwind their positions "without haste and without greater risk."
So far no hedge fund or banks have publicly acknowledged being on the losing side of the short squeeze.
"Clearly there has been a colossal amount of money lost," said a London hedge fund manger who invests in Germany but did not wager on the Volkswagen-Porsche play.
"There is obviously severe pain out there."
CLAMPDOWN
The billions that could have been lost raise the questions over whether disclosure rules should also apply not just to plain vanilla stock options but cash-settled ones as well.
"The VW situation highlights the need for a consistent approach to contracts for difference disclosure across Europe," said Andrew Shrimpton, a member of Kinetic Partners and the former head of hedge fund supervision at Britain's Financial Services Authority.
"If the UK FSA brings in requirements to stop secret stakes being acquired under the radar then the same approach should be applied in the rest of the continent."
German hedge fund association BAI admitted some funds might have been damaged by the squeeze, but that was inevitable in a market economy and an inevitable consolidation among the world's 10,000 was healthy.
Aleksander Kluzniak, its chief lobbyist, said he saw no need for a regulatory clampdown on derivatives, such as a registry of hedging positions, just because the market was surprised by creeping takeovers like Porsche-VW and Schaeffler-Continental (CONG.DE: Quote, Profile, Research, Stock Buzz), which were facilitated by building up clandestine positions in cash settled options.
"I doubt it would lead to the required results. New types of derivatives or trading techniques would emerge that were not subject to this regulation," Kluzniak explained.
VW WEIGHTING CUT
Only 24 hours after peaking as the world's biggest company by market value, VW stock fell on Wednesday as low as 491 euros as the market exhaled in relief that Porsche was releasing a part of its hedge and alleviating the worst of the squeeze.
Wednesday's retreat kept Germany's blue-chip DAX index .GDAXI in check despite double-digit rises on other stocks after Wall Street clocked up its second best day's gain on Tuesday.
Closing down 45 percent at 517 euros, VW's fall shaved off nearly 600 points from the index on Wednesday, meaning the DAX would otherwise have closed up 12 percent.
Deutsche Boerse (DB1Gn.DE: Quote, Profile, Research, Stock Buzz), operator of the Frankfurt exchange, said late on Tuesday it would cut the weighting of Volkswagen shares in the DAX to 10 percent from Monday after VW's leap had distorted the index.
Index provider Stoxx Ltd also said it would cut the weighting of Volkswagen shares in its main indexes and cut Volkswagen's free float factor to 0.3732 from 0.4963.
Volkswagen shares touched 1,000 euros at one point, pushing its weighting in the 30 member-DAX index to 27 percent.
(Additional reporting by Bill McIntosh, Knut Engelmann, Christoph Steitz, Sarah Marsh and John O'Donnell, editing by Will Waterman and David Cowell)
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Volkswagen shares soar again, up 93 percent
Volkswagen shares soar again, up 93 percent
By George Frey
ASSOCIATED PRESS
2:36 p.m. October 28, 2008
FRANKFURT, Germany – Shares of Volkswagen AG jumped an eye-popping 93 percent on Tuesday after a similar surge the day before. Speculation on the reason centered on hedge funds needing to unwind bad bets on the share's direction.
The immediate rise in VW share value – at one point, its market capitalization made it more valuable than Exxon Corp. – prompted German regulators to declare they were looking into the reasons for the explosive growth.
The surge came amid reports that hedge funds had been forced to buy scarce shares at high prices after mistakenly betting the shares would fall.
But with Porsche now holding nearly 43 percent of the company, and options to reach 75 percent by next year, that left a shortage of shares. If investors had shorted the stock by selling borrowed shares, they would need to buy shares in order to complete the deal.
On Sunday, Porsche Automobile Holding SE, which owns the company that makes the 911, Cayenne and upcoming Panamera sedan, said it increased its stake in VW to nearly 43 percent plus options, with an eye toward 50 percent by the end of 2008.
That started pushing VW shares into the stratosphere. On Monday, they were up nearly 147 percent to close at 520 euros ($651.35) compared with Friday's closing price of 210.85 euros ($264.41).
On Tuesday, Wolfsburg-based Volkswagen's shares spiked as high as 1,005 euros ($1,256) in Frankfurt trading Tuesday, nearly doubling Monday's close. At that level, Volkswagen was worth some 296 billion euros ($370.8 billion), greater than Exxon's market cap of $343 billion.
They later settled back to close at 945 euros ($1,183.70) – a gain of 81.7 percent. Some 12.3 million shares traded hands Tuesday.
German financial markets regulator BaFin said it was looking into the recent history of Volkswagen share trading to see if there has been any market manipulation or insider trading. “Since September the Volkswagen share has gone up and down dramatically,” Anja Engelland, a spokeswoman, said.
“We're looking at the trading, the history of the shares. We've been monitoring, and started analyzing since the beginning of October.”
She said BaFin is curious to see if “someone manipulated the market or was involved in insider trading. That doesn't mean we've found anything. We'll continue to check.”
The German state of Lower Saxony, where Volkswagen's headquarters is based, holds just over 20 percent of the company's shares. Analysts said that because Porsche has acquired a big part of Volkswagen's shares, the amount of freely floating shares is low, at only 6 or 7 percent. Scarce supply of shares could exaggerate any market moves.
Ulrich Horstmann, an analyst with Bayerische Landesbank, did not believe the rapid surge could continue. He said Volkswagen shares would most likely fall in the next months because the fair value on Volkswagen is really closer to 150 euros ($187.50).
“The (rising share price) could be part of the speculation on Porsche's options,” Horstmann said.
“We don't have any information on the derivatives on the market or Porsche's buying; we just know that they want 75 percent and that there aren't many shares left,” he said. “It seems Porsche is really successful in the derivative business. It's crazy and really untypical of the market.”
Another analyst said when a share price goes as high as 1,000 euros, ($1,250), one doesn't have to have a large position to get burned.
“I suppose someone else is on the other side of the share's movement and it's probably painful; perhaps terminally for some,” he said.
Porsche was already Volkswagen's biggest shareholder when it announced in the stake increase.
Stuttgart-based Porsche said “the goal remains, as long as the financial conditions are right” to increase its holding to 75 percent next year.
“Yesterday, VW has almost doubled its market capitalization,” said Oliver Roth, the director of equities trading at Close Brothers Seydler AG on Frankfurt exchange floor. “That's crazy; they should stop trading that share.”
Torsten Baar, a spokesman for Frankfurt exchange operator Deutsche Boerse AG, said the Volkswagen stock would remain in trade as long as it still has a free float of 5 percent.
“We don't know exactly where it is at the moment,” Baar said. “They're close. Yesterday they were around 2 percent away from there.”
Baar said the exchange makes its free float calculations at the end of the trading day.
Porsche shares fell on Monday, but reversed course on Tuesday, rising nearly 10 percent to close at 46 euros ($57.61).
Vehicle: PM me to Join the Expat Muslims for Obama Club........
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All of this happened last week when shares of VW soared to a 1000 Euro's last week when the sqeeze was on. I know of a German who was holding calls on VW shares at 60 something a share before the Porsche news came out. Have not heard from him since, maybe he retired.
Vehicle: 1985 500SEC, 1991 190E 2.6, bought 07/08 with 50k original miles.
Location: Los Angeles
Posts: 15,155
Volkswagen shares soar over two daysOctober 28, 2008 7:28 PM ET advertisement
Associated Press news FRANKFURT, Germany (AP) - Shares of Volkswagen AG jumped an eye-popping 82 percent on Tuesday after a similar surge the day before, leading German financial regulators to say they would investigate.
Speculation on the reason for the rise centered on a reduced number of shares available and on hedge funds needing to unwind bad bets on the share's direction. The surge came amid reports that big investors had been forced to buy scarce shares to get out of mistaken bets the shares would fall.
On Sunday, Porsche Automobile Holding SE, which owns the company that makes the 911 and Cayenne vehicles, said it increased its stake in VW to 42.6 percent plus enough options to give it 74.1 percent. Since the German state of Lower Saxony, where Volkswagen's headquarters is based, holds just over 20 percent of the company's shares, as little as 6 or 7 percent would be freely available.
That started pushing VW shares sharply higher. On Monday, they were up nearly 147 percent to close at 520 euros ($651.35) compared with Friday's closing price of 210.85 euros ($264.41).
On Tuesday, Wolfsburg-based Volkswagen's shares spiked as high as 1,005 euros ($1,256) in Frankfurt trading Tuesday, nearly doubling Monday's close. At that level, Volkswagen was worth some 296 billion euros ($370.8 billion), greater than Exxon Mobil Corp.'s market cap of $343 billion.
They later settled back to close at 945 euros ($1,183.70) — a gain of 81.7 percent. Some 12.3 million shares traded hands Tuesday.
German financial markets regulator BaFin said it was looking into the recent history of Volkswagen share trading to see if there has been any market manipulation or insider trading.
"Since September the Volkswagen share has gone up and down dramatically," Anja Engelland, a spokeswoman, said. "We're looking at the trading, the history of the shares."
Torsten Baar, a spokesman for Frankfurt exchange operator Deutsche Boerse AG, said the Volkswagen stock would remain in trade as long as it still has a free float of 5 percent.
"Yesterday, VW has almost doubled its market capitalization," said Oliver Roth, the director of equities trading at Close Brothers Seydler AG on Frankfurt exchange floor. "That's crazy; they should stop trading that share."
Ulrich Horstmann, an analyst with Bayerische Landesbank, did not believe the rapid surge could continue. He said Volkswagen shares would most likely fall in the next months because the fair value on Volkswagen is really closer to 150 euros ($187.50).
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