VW shares halve as Porsche eases short squeeze
Wed 29 Oct, 2008 12:23
FRANKFURT (Reuters) - Shares in carmaker Volkswagen nearly halved on Wednesday after main shareholder Porsche took steps to ease a squeeze on shortsellers that more than quadrupled the stock in days.
On Sunday Porsche said it had indirect control of 74.1 percent of VW, leaving less than 6 percent in the market and prompting a shortcovering rush that vaulted VW's market value to 278 billion euros (221.2 billion pounds) and its shares to a record close of 945 euros on Tuesday, compared with its weekend close at 210.85 euros.
The stock fell as low as 491 euros in early Frankfurt trading on Wednesday, pulling Germany's blue-chip DAX index down 2.2 percent, despite-double digit percentage gains on other stocks after Wall Street's second best gain on record.
"In order to avoid further market distortions and the resulting consequences for those involved, Porsche SE intends -- depending on the state of the market -- to settle hedging transactions in the amount of up to 5 percent of the Volkswagen ordinary shares," Porsche said in a statement.
"This may result in an increase in the liquidity of the Volkswagen ordinary shares," it added.
VW's fall shaved off roughly 600 points from the index on Wednesday, meaning it would otherwise be trading up nearly 10 percent, but for the Volkswagen effect.
Deutsche Boerse , operator of the Frankfurt exchange, said late on Tuesday it would cut the weighting of Volkswagen shares in the DAX to 10 percent from Monday after VW's leap had distorted the index.
Volkswagen shares had nearly doubled on Tuesday, rising above 1,000 euros at one point, briefly giving Volkswagen a market cap larger than the world's most valuable company, U.S. oil giant Exxon Mobil Corp , and increasing its weighting in the 30 member-DAX index to a hefty 27 percent.
Shortsellers who rushed to close their positions after Porsche's announcement on Sunday were paying virtually any price to get their hands on the few remaining shares, even though Porsche insisted its announcement would allow short sellers to unwind their positions "without haste and without greater risk."
LOWER WEIGHTING
Deutsche Boerse said in its statement: "By capping Volkswagen AG, the weightings of all other DAX constituents will be changed as well," and added that it would use closing prices on the electronic Xetra trading system on Friday as a basis for its recalculation.
The stock exchange operator's decision "should give some relief to shortsellers in Volkswagen and is mainly positive for the DAX index," said a Frankfurt-based trader.
There was wide speculation about which investment companies had been caught out by the short squeeze, and many banking shares fell as a result.
Hedge fund manager David Einhorn's Greenlight Capital suffered heavy losses from a VW trade, people familiar with his portfolio said on Tuesday. The fund declined comment.
Index provider Stoxx Ltd also said it would cut the weighting of Volkswagen shares in its main indexes and cut Volkswagen's free float factor to 0.3732 from 0.4963.
"This decision reflects the changes in the shareholder structure of Volkswagen and results in a lower weighting of Volkswagen in the respective indexes," Stoxx said.
(Reporting by Knut Engelmann, Christoph Steitz, Sarah Marsh and Christiaan Hetzner; Editing by Jason Neely/Will Waterman)
Wed 29 Oct, 2008 12:23
FRANKFURT (Reuters) - Shares in carmaker Volkswagen nearly halved on Wednesday after main shareholder Porsche took steps to ease a squeeze on shortsellers that more than quadrupled the stock in days.
On Sunday Porsche said it had indirect control of 74.1 percent of VW, leaving less than 6 percent in the market and prompting a shortcovering rush that vaulted VW's market value to 278 billion euros (221.2 billion pounds) and its shares to a record close of 945 euros on Tuesday, compared with its weekend close at 210.85 euros.
The stock fell as low as 491 euros in early Frankfurt trading on Wednesday, pulling Germany's blue-chip DAX index down 2.2 percent, despite-double digit percentage gains on other stocks after Wall Street's second best gain on record.
"In order to avoid further market distortions and the resulting consequences for those involved, Porsche SE intends -- depending on the state of the market -- to settle hedging transactions in the amount of up to 5 percent of the Volkswagen ordinary shares," Porsche said in a statement.
"This may result in an increase in the liquidity of the Volkswagen ordinary shares," it added.
VW's fall shaved off roughly 600 points from the index on Wednesday, meaning it would otherwise be trading up nearly 10 percent, but for the Volkswagen effect.
Deutsche Boerse , operator of the Frankfurt exchange, said late on Tuesday it would cut the weighting of Volkswagen shares in the DAX to 10 percent from Monday after VW's leap had distorted the index.
Volkswagen shares had nearly doubled on Tuesday, rising above 1,000 euros at one point, briefly giving Volkswagen a market cap larger than the world's most valuable company, U.S. oil giant Exxon Mobil Corp , and increasing its weighting in the 30 member-DAX index to a hefty 27 percent.
Shortsellers who rushed to close their positions after Porsche's announcement on Sunday were paying virtually any price to get their hands on the few remaining shares, even though Porsche insisted its announcement would allow short sellers to unwind their positions "without haste and without greater risk."
LOWER WEIGHTING
Deutsche Boerse said in its statement: "By capping Volkswagen AG, the weightings of all other DAX constituents will be changed as well," and added that it would use closing prices on the electronic Xetra trading system on Friday as a basis for its recalculation.
The stock exchange operator's decision "should give some relief to shortsellers in Volkswagen and is mainly positive for the DAX index," said a Frankfurt-based trader.
There was wide speculation about which investment companies had been caught out by the short squeeze, and many banking shares fell as a result.
Hedge fund manager David Einhorn's Greenlight Capital suffered heavy losses from a VW trade, people familiar with his portfolio said on Tuesday. The fund declined comment.
Index provider Stoxx Ltd also said it would cut the weighting of Volkswagen shares in its main indexes and cut Volkswagen's free float factor to 0.3732 from 0.4963.
"This decision reflects the changes in the shareholder structure of Volkswagen and results in a lower weighting of Volkswagen in the respective indexes," Stoxx said.
(Reporting by Knut Engelmann, Christoph Steitz, Sarah Marsh and Christiaan Hetzner; Editing by Jason Neely/Will Waterman)