...when Volkswagen was momentarily worth 240 billion sterling pounds, the most valuable company in the world!
A brief excerpt...
Hedge funds believed they were on safe ground by short selling VW shares, which they saw as overvalued when all car manufacturers are feeling the squeeze.What none of them knew was that Porsche had quietly been adding to its 42.6 per cent stake in VW by taking out options to buy VW shares owned by a number of German banks. Germany's somewhat eclectic financial regulations did not require Porsche to disclose this, and so none of the hedge fund managers had a clue what Porsche was up to.
That all changed with spectacular consequences when the sports car manufacturer suddenly issued an announcement, in German, just after 3pm on Sunday declaring that it either owned or had the option to own 74.1 per cent of VW.With the state of Lower Saxony owning another 20.1 per cent, this meant that just 5.8 per cent of VW shares were available to buy.
But hedge fund managers had promised to sell to third parties a total of 12 per cent of VW's shares, and 12 into 5.8 doesn't go.
One London-based fund manager saw the news when he flicked through financial websites on his BlackBerry during a Sunday afternoon walk."I ran like a madman back to my house," he said. "I assumed the numbers were wrong. I called my broker and couldn't get through."But when I finally did speak to him, and he told me he'd had a dozen panicked calls already, I knew it was true."Across the capital, and in financial centres across the world, brokers rushed to their offices to work out just how big a hit their clients were about to take.
Throughout Sunday afternoon, their phones rang off the hook as traders called them begging for help, undisguised panic in their voices.Hours before the markets opened here on Monday morning, hedge fund offices in "hedge fund alley'' in Mayfair were already buzzing with activity as traders went through the numbers over and over again, unable to do anything more meaningful until the German stock exchange opened at 8am.
"We knew there would be a bloodbath as soon as the market opened," said the trader. "We knew the price would rocket, widening the exposure of lots of hedge funds – they would be offering their daughters in return for the stock, just to get out of it."The scramble for shares meant that shareholders could name their price, and VW stock went from 210 euros to more than 1,000 euros in two days, making VW, at one point on Tuesday, the world's most valuable company at £240 billion.
Meanwhile, the fund managers who hadn't managed to buy enough shares to settle their accounts watched with horror as their losses spiralled out of control. Some of the bigger funds are thought to have lost as much as £4 billion.
And as the price of those precious shares quadrupled, Porsche made a paper profit of more than £100 billion, dwarfing the money it makes from selling cars.
The full article can be read here [link]