Life & Style | Motoring

Porsche admits making $8.7b from VW option trades

Porsche has fuelled the controversy over its stake building at rival Volkswagen by revealing it had earned eight times as much from its VW option trades than from actually selling cars.

  • Financial Times
  • Published: 22:50 November 8, 2008
  • Gulf News

Frankfurt: Porsche has fuelled the controversy over its stake building at rival Volkswagen by revealing it had earned eight times as much from its VW option trades than from actually selling cars.

The company said it made 6.83 billion euros ($8.7 billion Dh31.93 billion) from trading in VW options, plus another 1 billion euros from the rising value of its Volkswagen stake, in the fiscal year that ended in July.

This helped Porsche to increase its pre-tax profit by 46 per cent to 8.57 billion euros, even exceeding the company's revenues.

Analysts dubbed Porsche a "hedge fund", and even one of the most successful ones in the world, at a time when other carmakers are struggling with a sharp downturn.

Investors' onslaught

"If they now increase their stake [in VW] to more than 50 per cent and cash in the remaining 25 per cent of the options, they would make hedge funds and banks pay for the whole takeover," said Arndt Ellinghorst, analyst at Credit Suisse.

The extraordinary gains reaped from VW options trades caused another onslaught from investors.

Klaus Kaldemorgen, head of DWS, one of Germany's largest institutional investors, alleged that Porsche had used massive information asymmetries at the expense of other investors.

However, Porsche denies any wrongdoing and blames short sellers for the massive VW share price surge in recent months.

"We vehemently reject the accusation of share price manipulation," Porsche said in a statement last week.

Last month, VW's shares rocketed after Porsche unexpectedly disclosed that through the use of derivatives it had increased its stake in VW from 35 to 74.1 per cent, prompting Bafin, Germany's financial regulator, to launch a formal investigation into possible market manipulation.

But analysts blamed Bafin for allowing Porsche's use of options to secure secretly a dominating stake in VW.

Investment bankers said Bafin felt little appetite for pursuing an investigation of Porsche as it lacked political support for such a move.

The market turmoil stirred by VW's ballooning share price did not cause any political backlash within Germany.

However, Wendelin Wiedeking, Porsche's chief executive, might intensify the debate about executive pay in Germany. He is believed to have earned about 80 million euros last year.

This would make him one of the highest paid executives in the world. Porsche did not want to comment on Wiedeking's income.

However, car industry insiders said other executives in the industry were "not amused" about his pay, as it gave easy ammunition to the trade unions for a general assault on greedy managers.

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