Funds ramp up Porsche case

Hedge funds have gained more ammunition for their legal complaints against Porsche after the German sports carmaker revealed it had made almost €400m (£361m) by placing bets on several blue-chip shares, in addition to last year's controversial trades in Volkswagen options.

Holger Härter, Porsche's chief financial officer, recently said Porsche gained €392m in liquidity in its fiscal year 2007/08 from option trades of companies in the Dax, the German blue-chip index.

"We have also arranged share options to generate liquidity. The underlying shares were referring to Dax companies and not to Volkswagen," Mr Härter said at Porsche's shareholder meeting last month.

His revelation, made clear from transcripts of the annual meeting released last week, undermined Porsche's claims that its option trades in VW were driven by industrial logic as it built a stake in Europe's largest carmaker. Last year, Porsche made a profit of €6.8bn from VW option trades and about €1bn from selling sports cars. Porsche said it used the trades to generate interest-free liquidity by exploiting price differences between options.

Porsche triggered an extraordinary surge in VW's share price in October when it disclosed that it controlled through direct holdings and options 74 per cent of the mass-market carmaker. This was a much larger stake than the market had realised. The trades inflicted large losses on hedge funds and other investors that had placed bets on a falling VW share price. Some of those funds have filed complaints against Porsche at courts in Germany, alleging that its trading activities in VW ran counter to its own company statutes, which Porsche denies.

Bafin, the financial watchdog, is investigating possible market manipulation of VW shares. Porsche has always denied any allegations that it manipulated VW's share price.

Prosecutors at the German courts will not decide whether to launch a formal investigation into the hedge funds' complaints until Bafin has completed its probe.

Wendelin Wiedeking, Porsche's chief executive, said it was simply using the derivatives to hedge against a rise in VW's share price. "We are not speculators - we never have been and will never want to be," he said.

However, analysts said the VW option trades and the revelation of trades in other Dax shares made Porsche indeed look like a speculator.

Strategy fears, Page 23 www.ft.com/autos