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Volkswagen (VW) shares continued their rollercoaster ride today when they nearly halved in value after the German authorities took action to prevent the volatility in the carmaker's stock from destabilising the German market.
VW briefly became the world's most valuable company yesterday, worth £238 billion, following panic share buying by hedge fund chiefs.
The hedge funds were trying to cover potential losses after placing huge bets that Volkswagen shares would fall.
But Porsche, the sports car giant, had been secretly building a 74 per cent stake in its rival, the world's third-largest carmaker.
Porsche said this morning that it would take steps to smooth VW's soaring share price by settling hedging transactions, equivalent to 5 per cent of the company’s stock, but the move has come too late for some of the world's most aggressive hedge funds, which are facing losses that could amount to between €20 billion (£15.9 billion) and €30 billion.
Today the shares fell €416.9 to €528.09 in morning trade.
Hedge fund experts believe the losses could even bring down some smaller funds, which have been caught out by the sudden price move.
Two days of frantic trading have led to what is thought to be one of the heaviest losses on a single company's shares taken by hedge funds.
"This is without question the biggest single loss on a single stock in the history of hedge funds. It's a bloodbath," Laurie Pinto, a broker at North Square Capital, said.
Other shareholders in VW rounded on Porsche, saying that it had manipulated VW shares in an irresponsible manner. Porsche vehemently rejected the accusation of share-price manipulation.
With Porsche already owning 42.6 per cent of VW and Lower Saxony 20 per cent, the revelation on Sunday night that it had acquired the rights to an additional 31.5 per cent left little more than 5 per cent of shares free to cover short positions that amounted to nearly 13 per cent of the company's stock.
As soon as the markets opened on Monday, hedge funds and investment banks' scrambled to cover their bets.
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i have more or less lost my life savings because of hedge funds no sympathy here
andy, surrat, thailand
Do not let backroom deals bail out these tools! The main people who invest in hedge funds are the super rich. Let them work for their money for a change.
Robert, Halifax, Canada
I'm going back to clipping my hedges. Well done Porsche, to quote Bugs Bunny, First, Disorient your Oponent.
Ernest, Murcia, Spain
If a "hedge" fund shorts a stock without a hedge - well who is to blame if the stock goes in the other direction? Oh - of course hedge funds want a free lunch.
Grant, Stamford , USA
Charlie from Munich, you are misguided.
When Porsche announced earlier this year that their board had given permission to expand above 50% they had every right as a company to protect themselves against people who wanted to drive up the stock price and buy call options as an insurance premium.
Peter, Amsterdam, NL
Sorry why are the hedge funds crynig foul, what about all the other shareholders who would have lost lots of money if the share prices falls or crashes.
Alex Samad, Rhodes, Australia
hahahahahahahahahahahahahahaha - perfect end to the day!
pd, bristol,
Dont have any cash, get paid monthly, spend it. Probably going to pop my clogs whilst still working so not to fussed about pension, death in service benefits will see her ok.
How much have these people been making by manipulating markets in the last decade?
Oh to have seen their faces :) :)
Richard Dow, Stenhousemuir,
I agree, Meyer, it serves the hedge funds right! They only serve to exploit the markets for profit without actually producing anything or adding useful value in society. Good riddance. Let's hope governments wake up to their abuse and tax them more heavily when they do make excessive profits.
ruskee, London,
My old mum always said You should not gamble if You cannot afford to lose.
R.Belcher, romford, uk
Heavy losses for greedy Hedgefunds. Thats great news! Hope there will be more payback of this sorts and many hedgefund bankcruptcies to come.
Meyer, Ravensburg, Germany
And the bad news for Hedge funds is....
pete, birmingham, uk
Ha! Spivs ahoy! Not so nice when the boot is on the other foot, house wins. The vultures of capitalism need to inject a bit of ethics into their actions, the market is not a casino, stop treating it as one and consider real value and real investment strategies - pathetic gamblers.
Winston Smith, Edinburgh, UK
Short selling adds no value to anything tangeable. The only winners are the thugs who help themselves to huge bonuses. The world needs to unite against these people who destroy companies and currencies. No difference between them and Al Capone, its extortion.
George T, Elk Grove, USA
Mwahhhh, Mummy never told me that there might be nasty people out there.....
Sorry would be more sympathetic but have got to get on with paying for my mortgage through hard graft & the talent I have worked for.
ie not from Daddy's social network or spending the whole day in the bookies..
Jeremy, Farnham,
Well done guys stick to the hedge funds, again and again.
Was it really Karl Marx who said, "capitalism will destroy democracy"
The gap between the top of the food chain and the bottom is just getting so big. Don't be surprised if the guys at the bottom take to the streets sometime soon maybe?
John, Callington, UK
...Die by the bailout
Michael, West Midlands,
This fund manager's comment prooves the short-sightnedness of the poeple that has caused the mess the financial business is in at the moment.
Everybody doing the least of research could know that VW is not an ordinary share for the last year. Betting uncovered in such a case is plaind stupid.
harry, utrecht, Netherlands
Let's imagine instead that the aggressive shorting had provoked a crisis of confidence, resulting in the banks pulling VW's lines of credit and forcing the company into bankruptcy and the unemployment of all the workers.
Would the hedge funds have queued up to help out?
John Ercep, Calgary, Canada
Well done Porsche!! although could back fire with the Hedge fund guys flooding the used car market with cars they cant afford!! time to pick up a cheap 911..........
Hugo, london, uk
what goes around come around.
tim, gravesend, uk
They're still grotesquely overvalued by reference to their quoted competitors worldwide. Worringly, Porsche appeared to act contrary to previous statements that it would not seek to gain control of VW. The German regulatory/disclosure regime is surely also likely to come under the spotlight.
tom harris, dublin,
Oh yes Martin, unbelievably the practice does exist and is called Naked Short Selling. Now these hedge fund idiots are well and truly stuck being unable to buy the shares they have already sold on, hence the massive demand and rise in price.
Well done Porsche.
Richard Elliot, Lisbon, Portugal
Shocking to hear that hedge fudge managers complaining that someone other than themselves has been rigging the price of a stock. That is there prerogative, surely?
Anthony Ainsworth, Bangkok,
It is at the very least irresponsible of Porsche to play with the markets considering the current instability. This should definitely be investigated.
Charlie, Munich,
Hang about I thought that a hedge fund or anyone else for that matter could not short a share unless they borrowed the shares first i.e. you can not sell shares you don't own.
Clearly this has not happened here and the hedge funds concerned deserve their loss and should be investigated.
Martin Garthwaite, London, UK
Live by the sword...
Michael, Liverpool, UK