Hedge fund managers seriously injured in VW

 

THE PORSCHE takeover of Volkswagen ensured another wild ride on the Frankfurt stock exchange yesterday as VW shares plunged 50 per cent after quad-rupling in value in recent days.

The new owners-to-be of VW sparked a dramatic price spike after embarking on a shopping spree to snap up the last remaining freely-traded shares in Europe's largest car-maker. When they announced on Sunday that they controlled 74 per cent of the company in stocks and options, all hell broke loose in Frankfurt.

Shares in Volkswagen went through the roof as hedge fund managers scrambled to buy back, at a massive premium, the borrowed shares they had sold in the hope of buying them back later at a discount. Their so-called short betting went spectacularly wrong and the speculators lost a fortune - double-digit billion figures were circulating yesterday - in what some analysts are calling the greatest single share loss in hedge fund history.

The share surge gave VW a few minutes of fame as the world's most valuable company by market capitalisation, bigger than ExxonMobil, before closing below the €1,000 a share mark.

Yesterday Porsche released 5 per cent of its options again to "prevent further market distortions". However, it said it would not sell "one single share" of its 42.6 per cent stake in its future subsidiary. Porsche's announcement caused VW shares plunge - relatively speaking - to €572.

It rejects claims it manipulated the market, accusing speculators of sour grapes for betting the wrong way. Estimates yesterday suggested the luxury carmaker will pocket around €6 billion on yesterday's options transaction.

The most recent company filings show that, last year, Porsche made three times as much money trading options with hedge fund managers as selling them the sports cars they favour.

German financial regulator BaFin said yesterday that it was launching an investigation into the VW share price acrobatics. A spokesperson declined to confirm whether the investigation will focus on Porsche.