Volkswagen ends day up more than 25%
By Steve Goldstein, MarketWatch
Last update: 12:46 p.m. EDT Sept. 18, 2008LONDON (MarketWatch) -- The world's financial system is in turmoil. Auto sales are down around the world, yet the stock price of Volkswagen is taking off.
Germany's Volkswagen (DE:766400: news, chart, profile) , the leading automaker in Europe by sales, ended with a one-day pop of nearly 27%, extending gains made Tuesday and Wednesday.
The appreciation doesn't appear to have anything to do with an improved outlook, and only partly seems related to the interest that Porsche has expressed in securing 50% control of the Wolfsburg-based automaker.
On Tuesday, Porsche said that it increased its stake to 35% -- which, given the typical attendance at shareholder meetings, gives it control of the automaker.
Porsche also clung to its view that it wants to eventually improve its stake to more than 50%.
But Porsche, and its second-leading shareholder, the Lower State of Saxony, both said Thursday that they didn't enter the open market to buy VW shares.
The Lower State of Saxony has an interest in buying up more VW shares as it wrestles with Porsche to make sure it still has a say in VW's decisions.
That means the gains in all likelihood have been driven by technical reasons. A popular trade in Germany was to short Volkswagen common shares and go long on the VW preferred stock (DE:766403: news, chart, profile) .
But such a trade hasn't always been successful. Düsseldorf-based bank WestLB has lost hundreds of millions of dollars doing precisely this.
Still, it's apparently popular. The preferred class of shares ended with a loss of more than 3% Thursday.
What that suggests is that investors facing margin calls amid the global crisis are closing out their short positions by buying the VW common shares. That's being accompanied, to a far lesser degree, by selling out of the preferred.
The move also could be related to the expiration of key options and futures contracts Friday.
"I've never seen in my 34 years seen such a stupid move," said Heino Ruland, a strategist at FrankfurtFinanz. "This has to be an enforced fulfillment."
Ruland posits that if hedging were done through Lehman Brothers Holdings Inc. perhaps by Porsche, which has actively traded VW shares -- then those assets would be unavailable because Lehman accounts are frozen in Germany.
"If Lehman is the indirect holder from Porsche, then someone needs to close the gap on those options," added Ruland. "It's extremely weird how that price was pushed up on heavy volume."
He suggests that someone, or some firm, is sitting on a loss of more than 1.5 billion euros, based on the moves over the last three days.
AI
