So how many hedgies did Porsche really kill? | FT Alphaville

So how many hedgies did Porsche really kill?

Difficult to say, of course, but we’d be sellers of the €30bn figure being banded about by newspapers as they struggle to explain how speculators borrowed shares in Volkswagen, not knowing they belonged to Porsche, sold them, and then seemingly had to buy them back (from Porsche) at five times the price, before giving them to Porsche. (We won’t address the pref side of the trade!)

The €30bn figure would seem to come from taking the raw “borrowed stock” position in VW from Data Explorers (12.9 per cent), subtracting the notional freefloat in VW (5.9 per cent) , multiplying the resultant number of shares by €1,000 – and then adding €10bn to please the news desk.

It’s the financial media equivalent of a crime reporter – charged with providing colour on the scene of a domestic murder – looking in a local estate agency window, finding the most expensive property in the locale and then doubling the price for effect.

In reality, exchange data suggests something like 22m shares in VW have actually changed hands at prices ranging from €210 to €1005. Without getting too VWAP-ish about this, stripping out double counting, that points to maybe €6bn of business conducted at the “wrong” price. Slap a random €200-a-share price tag on VW and the realised losses come in at maybe €4bn.

Painful for those funds caught in the mire, yes – but far from fatal for the global hedge industry.

The damage to Germany’s financial markets, meanwhile, is unquantifiable.

Related links
Porsche offers to settle VW hedging trades –
Porsche to sell 5% stake in VW – FT Alphaville
The disreputable market in Volkswagen – FT Alphaville