Hedge Funds lose £24bn as VW shares take off
Hedge funds have lost as much as €30bn (£24bn) short selling carmaker Volkswagen after the shares soared on the revelation that rival Porsche had secured 74pc of the equity and planned to seize control of its rival.
The €30bn hit is thought to be one of the heaviest losses on a single company's shares ever taken by hedge funds, which have already been hit hard by the turmoil in the markets.
"This is without question the biggest single loss on a single stock in the history of hedge funds. It's a bloodbath," said Laurie Pinto, a broker at North Square Capital, a division of Winterflood.
Porsche's disclosure on Sunday that it held 74pc of the car maker – rather than the previously assumed 42.6pc – prompted a huge scramble to cover short positions (AtW's comment: short positions of this nature should attract very long jail sentences) in Volkswagen, which had been the most shorted stock in Germany's benchmark DAX index.
With less than 6pc of the shares available to buy, VW soared as high as €1,005 in early trading yesterday, having already tripled in value on Monday. The shares, which closed at €210 on Friday, ended the day at €945.
One hedge fund said: "There have been some dark moments over the past few months but none blacker than this. We couldn't have dreamt a worse scenario."
The rise put a price tag of €296bn ($369bn) on Volkswagen at its peak, making it the world's largest company, ahead of oil company ExxonMobil.
"The German stock exchange has become a joke," said Andy Brough, a fund manager at Schroders. (AtW's comment: no Andy, the exchange is fine, it is your buddies in funds who are a joke, only it's not a funny one.)
Hedge funds had staked hundreds of millions of euros on VW shares falling in line with other car makers – short selling the equivalent of 13pc of the company's shares.
As well as the hedge funds, investment banks' proprietary desks are also believed to have short sold Volkswagen shares.
Shares in German banks fell amid speculation in the market that many of them were exposed to the fall out.
Morgan Stanley shares tumbled 12pc, forcing the bank to issue a statement stating that it did not have any exposure to VW. Goldman Sachs fell 6pc amid similar concerns of contamination.
Meanwhile, analysts claimed that Porsche had profited from the turmoil, sparking even more fury among traders. (AtW's comment: those guys are cracking me up - Porsche unlike them is actually doing useful stuff and so is VW, if they make profit from this activity it's fair play
)
Max Warburton, an analyst at Sanford Bernstein, claimed that the company had benefited not just from the rise in the share price but behind the scenes as the traders sought to unwind their positions.
In a note to clients, Mr Warburton said: "Porsche is making billions from this game – lending stock, buying then selling back, plus puts." He added: "This represents a breakdown in [the German] regulatory function in our view."
Porsche vehemently rejected the accusations. "The ones responsible are those that speculated with huge sums of money on a falling Volkswagen share price," said a spokesman.
German regulator Bafin has announced that it is looking at the VW share movement to see if any insider trading or market manipulation had taken place, but has not yet launched an official investigation.
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Look, it's simple - the only profits that should be made from shares is when they go up or when they pay dividends, it should not be possible at all to make any money on falling shares - if they fall it should mean you lose money, unless you choose to stick with them long term. If this simple rule (and a couple more regarding debt limits) was followed we would not get into current mess. Of course this would mean 99% of hedge funds will close, but I think it's the price the society can afford to pay, eh?
Hedge funds have lost as much as €30bn (£24bn) short selling carmaker Volkswagen after the shares soared on the revelation that rival Porsche had secured 74pc of the equity and planned to seize control of its rival.
The €30bn hit is thought to be one of the heaviest losses on a single company's shares ever taken by hedge funds, which have already been hit hard by the turmoil in the markets.
"This is without question the biggest single loss on a single stock in the history of hedge funds. It's a bloodbath," said Laurie Pinto, a broker at North Square Capital, a division of Winterflood.
Porsche's disclosure on Sunday that it held 74pc of the car maker – rather than the previously assumed 42.6pc – prompted a huge scramble to cover short positions (AtW's comment: short positions of this nature should attract very long jail sentences) in Volkswagen, which had been the most shorted stock in Germany's benchmark DAX index.
With less than 6pc of the shares available to buy, VW soared as high as €1,005 in early trading yesterday, having already tripled in value on Monday. The shares, which closed at €210 on Friday, ended the day at €945.
One hedge fund said: "There have been some dark moments over the past few months but none blacker than this. We couldn't have dreamt a worse scenario."
The rise put a price tag of €296bn ($369bn) on Volkswagen at its peak, making it the world's largest company, ahead of oil company ExxonMobil.
"The German stock exchange has become a joke," said Andy Brough, a fund manager at Schroders. (AtW's comment: no Andy, the exchange is fine, it is your buddies in funds who are a joke, only it's not a funny one.)
Hedge funds had staked hundreds of millions of euros on VW shares falling in line with other car makers – short selling the equivalent of 13pc of the company's shares.
As well as the hedge funds, investment banks' proprietary desks are also believed to have short sold Volkswagen shares.
Shares in German banks fell amid speculation in the market that many of them were exposed to the fall out.
Morgan Stanley shares tumbled 12pc, forcing the bank to issue a statement stating that it did not have any exposure to VW. Goldman Sachs fell 6pc amid similar concerns of contamination.
Meanwhile, analysts claimed that Porsche had profited from the turmoil, sparking even more fury among traders. (AtW's comment: those guys are cracking me up - Porsche unlike them is actually doing useful stuff and so is VW, if they make profit from this activity it's fair play
) Max Warburton, an analyst at Sanford Bernstein, claimed that the company had benefited not just from the rise in the share price but behind the scenes as the traders sought to unwind their positions.
In a note to clients, Mr Warburton said: "Porsche is making billions from this game – lending stock, buying then selling back, plus puts." He added: "This represents a breakdown in [the German] regulatory function in our view."
Porsche vehemently rejected the accusations. "The ones responsible are those that speculated with huge sums of money on a falling Volkswagen share price," said a spokesman.
German regulator Bafin has announced that it is looking at the VW share movement to see if any insider trading or market manipulation had taken place, but has not yet launched an official investigation.
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Look, it's simple - the only profits that should be made from shares is when they go up or when they pay dividends, it should not be possible at all to make any money on falling shares - if they fall it should mean you lose money, unless you choose to stick with them long term. If this simple rule (and a couple more regarding debt limits) was followed we would not get into current mess. Of course this would mean 99% of hedge funds will close, but I think it's the price the society can afford to pay, eh?
Nice one Bob, thought you were dead.
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