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Tuesday, 28 October 2008
Volkswagen shares jump and short-sellers pounce
Volkswagen became the world’s biggest company by market value after Porsche announced plans to raise its stake in the German carmaker to 75 percent, triggering demand from short-sellers.
Volkswagen became the world’s biggest company by market value after Porsche announced plans to raise its stake in the German carmaker to 75 percent, triggering demand from short-sellers.
Volkswagen rose as much as €485.01, or 93 percent, to €1,005.01 and was up 55 percent as of 11:10 a.m. in Frankfurt trading. The Wolfsburg, Germany-based Volkswagen has risen more than fivefold this year and at its intraday peak was valued at €296 billion, or $370 billion, more than Exxon Mobil’s $343 billion market value at Monday’s closing price in New York, according to data compiled by Bloomberg.
Porsche, the maker of the 911 sports car, has accumulated Volkswagen shares since 2005 in an effort to protect ties to its biggest supplier. Porsche said Oct. 26 that it aims to increase its holding from 42.6 percent. That prompted some short-sellers to buy from a shrinking pool of stock to end their bets. BaFin, Germany’s financial-market regulator, said Tuesday that that it was monitoring trading in Volkswagen shares following the gains.
“One of the biggest risks with the herd mentality approach to shorting is that a lot of money can be made on the outset,” said Ed Oliver, a senior business consultant at Spitalfields Advisors, a London-based firm specializing in securities lending. “But you can end up losing the whole of it when you try to close the position. There’s no limit.”
Volkswagen’s surge came as 23 of the 29 other stocks in the country’s benchmark DAX Index fell on investor concern that a slowdown in the global economy is accelerating. About 12.9 percent of Volkswagen’s common stock was on loan as of Oct. 23, mostly for short sales, the highest proportion of any company on the DAX, according to London-based Data Explorers.
The Stuttgart, Germany-based Porsche added to an earlier 35 percent stake and said two days ago that it holds options for another 31.5 percent.
“Porsche heads for a domination agreement and triggers a short-squeeze,” Horst Schneider, an HSBC Holdings Plc analyst in Dusseldorf, Germany, wrote in a report yesterday, in which he upgraded Volkswagen’s common shares to “neutral” from “underweight.” The stock “will be more driven by covering of short positions rather than by fundamental valuations.”
Carmakers worldwide are struggling with plunging sales as credit markets seize up and economies contract, deterring consumers from making large purchases. U.S. industry-wide auto sales fell 27 percent in September, the steepest monthly slide since 1991, while nine-month deliveries in Europe declined 4.4 percent as September sales dropped 8.2 percent.
There may be little ordinary stock freely trading in Volkswagen because most of the shares are owned by Porsche, the German state of Lower Saxony and the banks that underwrote Porsche’s options, Adam Jonas, a London-based analyst at Morgan Stanley, wrote in a research report Monday. Lower Saxony is Volkswagen’s second-biggest owner with a 20.1 percent stake.
Index-tracking funds also hold stakes in Volkswagen, now the DAX’s most-weighted stock, and must retain the holdings as long as the carmaker remains a member.
Deutsche Boerse, the operator of Germany’s main stock markets, said Volkswagen will remain in the DAX unless the carmaker announces the freely traded stock no longer meets requirements.
“We’re applying our regulatory framework and, as long as Volkswagen’s free float is above 5 percent, the index won’t be changed,” said Torsten Baar, a spokesman for Frankfurt-based Deutsche Boerse.
BaFin is analyzing trading in Volkswagen stock, though it hasn’t opened a formal inquiry into whether there’s any manipulation and “pure cash-settled options do not require disclosure” under the country’s laws, said Anja Engelland, a spokeswoman for the Bonn-based agency. Results from any analysis are unlikely this week, she added.
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Volkswagen shares jump and short-sellers pounce
Bloomberg News
28 October 2008
Volkswagen became the world’s biggest company by market value after Porsche announced plans to raise its stake in the German carmaker to 75 percent, triggering demand from short-sellers.
Volkswagen rose as much as €485.01, or 93 percent, to €1,005.01 and was up 55 percent as of 11:10 a.m. in Frankfurt trading. The Wolfsburg, Germany-based Volkswagen has risen more than fivefold this year and at its intraday peak was valued at €296 billion, or $370 billion, more than Exxon Mobil’s $343 billion market value at Monday’s closing price in New York, according to data compiled by Bloomberg.
Porsche, the maker of the 911 sports car, has accumulated Volkswagen shares since 2005 in an effort to protect ties to its biggest supplier. Porsche said Oct. 26 that it aims to increase its holding from 42.6 percent. That prompted some short-sellers to buy from a shrinking pool of stock to end their bets. BaFin, Germany’s financial-market regulator, said Tuesday that that it was monitoring trading in Volkswagen shares following the gains.
“One of the biggest risks with the herd mentality approach to shorting is that a lot of money can be made on the outset,” said Ed Oliver, a senior business consultant at Spitalfields Advisors, a London-based firm specializing in securities lending. “But you can end up losing the whole of it when you try to close the position. There’s no limit.”
Volkswagen’s surge came as 23 of the 29 other stocks in the country’s benchmark DAX Index fell on investor concern that a slowdown in the global economy is accelerating. About 12.9 percent of Volkswagen’s common stock was on loan as of Oct. 23, mostly for short sales, the highest proportion of any company on the DAX, according to London-based Data Explorers.
The Stuttgart, Germany-based Porsche added to an earlier 35 percent stake and said two days ago that it holds options for another 31.5 percent.
“Porsche heads for a domination agreement and triggers a short-squeeze,” Horst Schneider, an HSBC Holdings Plc analyst in Dusseldorf, Germany, wrote in a report yesterday, in which he upgraded Volkswagen’s common shares to “neutral” from “underweight.” The stock “will be more driven by covering of short positions rather than by fundamental valuations.”
Carmakers worldwide are struggling with plunging sales as credit markets seize up and economies contract, deterring consumers from making large purchases. U.S. industry-wide auto sales fell 27 percent in September, the steepest monthly slide since 1991, while nine-month deliveries in Europe declined 4.4 percent as September sales dropped 8.2 percent.
There may be little ordinary stock freely trading in Volkswagen because most of the shares are owned by Porsche, the German state of Lower Saxony and the banks that underwrote Porsche’s options, Adam Jonas, a London-based analyst at Morgan Stanley, wrote in a research report Monday. Lower Saxony is Volkswagen’s second-biggest owner with a 20.1 percent stake.
Index-tracking funds also hold stakes in Volkswagen, now the DAX’s most-weighted stock, and must retain the holdings as long as the carmaker remains a member.
Deutsche Boerse, the operator of Germany’s main stock markets, said Volkswagen will remain in the DAX unless the carmaker announces the freely traded stock no longer meets requirements.
“We’re applying our regulatory framework and, as long as Volkswagen’s free float is above 5 percent, the index won’t be changed,” said Torsten Baar, a spokesman for Frankfurt-based Deutsche Boerse.
BaFin is analyzing trading in Volkswagen stock, though it hasn’t opened a formal inquiry into whether there’s any manipulation and “pure cash-settled options do not require disclosure” under the country’s laws, said Anja Engelland, a spokeswoman for the Bonn-based agency. Results from any analysis are unlikely this week, she added.
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