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October 29, 2008

Holy Fahrvergnügen, Batman!

The irony of this is so rich I can taste it

The head of Germany’s largest fund manager accused Porsche – the largest investor in VW – of acting against the interest of other shareholders.

Klaus Kaldemorgen, the head of DWS, which is a shareholder in VW and owned by Deutsche Bank, said: “I criticise heavily that a company like Porsche is manipulating VW shares in an irresponsible manner.”

And what is this " irresponsible manner”? Um, something so nefarious as owning more of the stock than the market 'experts' had thought.

Which means all the hedge fund managers and Goldman Sachs/Morgan Stanley geniuses, yes the same folks who brought you the financial joys of the past few months, are screwed again because they shorted the holy loving poop out of VW stock

Volkswagen briefly became the world’s largest company by market capitalisation on Tuesday after an extraordinary share price surge that raised fears that hedge funds and other traders could collapse after betting on a fall in the stock.

The continued surge – triggered by the revelation on Sunday that Porsche had a much larger interest in the carmaker than many traders had realised – sharpened criticism over the level of disclosure and regulation in German capital markets.

VW’s share price rose 82 per cent to €945 following Monday’s 147 per cent jump, leaving it with a market capitalisation of about €287bn ($370bn), making it the world’s second-largest company ahead of Wal-Mart, General Electric and Microsoft.

At its intra-day peak of €1,005, its market capitalisation exceeded Exxon, the US oil company. This has raised fears over a “squeeze” on traders betting on a fall in Volkswagen shares through short-selling – the practice of selling borrowed shares in hope of profiting by buying them back later at a lower price and returning shares to the lender.

A manager at a large hedge fund said: “The losses will be extreme. I don’t think it is going to bring down a big fund, but it will probably bring down some small ones.”

Couldn't happen to a nicer bunch. As they termed it, "Shortenfreude"

The immediate cause of the problem was Sunday’s revelation that Porsche, which has been engaged in a creeping takeover of VW for the past three years, controlled not just 35 per cent of the group as had been known, but 74.1 per cent, through an equity stake of 42.6 per cent and 31.5 per cent in cash-settled options, which it did not have to disclose. Taken with the 20.1 per cent owned by the state of Lower Saxony, that left a free float of just 5.8 per cent, barely above the 5 per cent required for the company to remain in Germany’s blue-chip Dax index.

Screw these guys who short stocks en masse and cause credit problems at otherwise sound companies.

Posted by Mr. Bingley at October 29, 2008 06:41 AM

Comments

OT but related: Futures this morning are in positive territory. After yesterday's run up I was expecting the hangover dip, so don't take any stock advice from me.

Posted by: Retread at October 29, 2008 08:21 AM

I'm sure all the rats will be running from side-to-side in these mkts for quite a while to come; I've certainly seen nothing to get me all giddy about the prospects.

Which in itself is probably reason for you to buy!

Posted by: Mr. Bingley at October 29, 2008 09:05 AM

I have no pity for anyone on wall street anymore. The government has succeeded in socializing everything now. Our freedom is doomed. It's only a matter of sliding into the abyss now. We're like Boba Fett in the sand monster, there's not much to grab onto to save ourselves.

Posted by: Skyler at October 29, 2008 12:15 PM