Porsche At Risk Of Bankruptcy Over VW Option Trades

May 25, 2009
Porsche CEO Wendelin Wiedeking with CFO Holger Härter

Porsche CEO Wendelin Wiedeking with CFO Holger Härter

These days, liquidity is in short supply for all hedge funds, and it comes as no surprise the hedge fund wannabe Porsche (POAHF) suffers from the same liquidity squeeze symptoms as many of its hedge fund brethren. The liquidity situation for Porsche will be critical over the next three weeks.

Recall that Porsche engineered a massive short squeeze of Volkswagen common stock (VLKAF) just a few months ago. Volkswagen’s common had been shorted by arbitrageurs who went long the undervalued preferred (VLKPF) at the same time. When Porsche announced that it had acquired 75% of Volkswagen through options and intended to take over the firm, the common stock soared while the preferred didn’t budge. This led to large losses for the hedge funds when they had to cover their short positions in the common.

The flipside of Porsche’s large position in VW option is Read the rest of this entry »

Société Générale’s Jérôme Kerviel First Interview About EUR 4.9 bn Trading Losses

February 9, 2009

Interview with Jerome Kerviel on TF1

Interview with Jerome Kerviel on TF1

We have been eager for a long time to hear the other side of last year’s mega losses at Société Générale (SCGLF), where a lone trader allegedly gambled away EUR 4.9 billion without anyone realizing it. Having worked at a French bank for a while ourselves, we have always felt that Kerviel’s losses were possible only due to the acquiescence of his superiors, who chose not to look too closely at his stellar track record. The beauty of that strategy, which we have witnessed on a smaller scale in the enterprise we worked at, is that everyone is happy while things go well. But if there is a turn of events to the worse, you can blame it on a rogue trader. Read the rest of this entry »

Why Regulators Allow Banks To Invest In Fannie And Freddie Preferred Stock

August 27, 2008

From Sovereign (SOV) to JP Morgan (JPM) banks make headlines with writedowns on their holdings of Fannie’s (FNM) and Freddie’s (FRE) preferred stock, but the obvious question of how stock ever got onto banks’ balance sheets is only asked by Felix Salmon – and even he doesn’t know the answer. In general, banks are barred from investing in equity securities. However, the government made Fannie and Freddie preferred stock a “permissible” investment to create a sufficiently large market for these securities.

Read the rest of this entry »

An Evaluation Of The SEC’s Naked Short Selling Prohibition

August 14, 2008

So what exactly was the impact of the SEC’s July 15 emergency order against naked short selling? Not much, shows a study by Arturo Bris, a professor at Lausanne’s IMD business school. He shows that by some measures, it even had a detrimental effect on the market of the very stocks that the SEC sought to protect. For those who missed it, the list was:

Allianz Aktiengesellschaft (AZ), Bank Of America Corp (BAC), Barclays PLC (BCS), BNP Paribas (BNPQF/BNPQY), Citigroup Inc (C), Credit Suisse Group (CS), Daiwa Securities Group Inc (DSECY), Deutsche Bank Group AG (DB), Fannie Mae (FNM), Freddie Mac (FRE), Goldman Sachs Group Inc (GS), HSBC Holdings plc (HBC), JPMorgan Chase & Co. (JPM), Lehman Bros Holdings Inc (LEH), Merrill Lynch & Co Inc (MER), Mizuho Financial Gp Adr (MFG), Morgan Stanley (MS), Royal Bank of Scotland Group plc (RBS), UBS AG (UBS). Read the rest of this entry »

WAMU’s Numbers: Financial Restructuring Is Inevitable

July 25, 2008

Washington Mutual, WAMU

Washington Mutual’s (WM) announcement this week that it has no plans to raise additional capital sent the stock up temporarily, but as soon as investors did some simple math on the numbers, it came down to a more realistic, albeit still inflated, number. Wamu boosted its loss reserve to $8.46bn and expects to suffer losses “toward the upper end of the range it disclosed in April” of $12-19bn. If we add Wamu’s current excess capital of $7bn to its loss reserve, we find that Wamu is at risk of running short of capital to pay for the upper end of its own loss forecast. Read the rest of this entry »