|People’s car puts the brakes on hedge fund profiteering|
The reputation of the German stockmarket has taken a battering following the news that Porsche had been allowed to buy up around 75% of Volkswagen without anyone noticing. However, one can’t help but smile about the deep sense of Schadenfreude surrounding the whole affair.
The chickens have indeed come home to roost for these very hedge funds that through irresponsible short selling are at least part responsible for the current global financial meltdown.
The casualty list of hedge funds that have lost an estimated €20 billion through ill judged short selling is extensive. Steven Cohen's SAC Capital and Och Ziff, and Perry Capital, a key financier in Malcolm Glazer's takeover of Manchester United, were among the losers. Greenlight Capital, run by David Eindhorn, Marshall Wace, York Capital and Glenview Capital are also among about a hundred or so thought to have made massive losses, leaving many on the verge of bankruptcy.
The very tactics that resulted in board room car parks full of gleaming 911s, Cayennes and Boxsters have bitten back. The irony will not be lost on those about to have their gleaming new Caymans repossessed.
It is bit like paying someone tens of thousands of pounds to find out they’re using the money to seduce your wife.
They assumed that the car maker’s share price was about to drop due to the on coming recession. So they started short selling, offloading borrowed VW stock hoping to buy them back at a lower price, handing the original shares back and pocketing the difference.
Instead the very opposite happened, Porsche had quietly been adding to its 45% stake until it owned virtually three quarters of the company. When this news got out demand for the remaining shares went through the roof at one point up 93% of their value at nearly €10 a share.
The immoral attempt at profiteering by driving the share price down had back fired spectacularly.This crafty piece of business will have come as no surprise to industry insiders who know Porsche is no slouch when it comes to financial trading. In German financial circles the joke goes that the company is a hedge fund with a car making hobbyLast year it made profits of €1billion from building vehicles and €3.6billion from stock market trading.
The hedge funds are now screaming about getting the German financial regulations tightened up to stop his type of secret share buying.
But sympathy is likely to be in short supply, for these were the very funds who were making billions as HBOS and RBS faced meltdown. Those who live by the sword.