You know that German financier who killed himself after losing a bundle on a bad position on Volkswagen? What did him in was betting against Porsche, which engineered “one of the most masterful hacks of the financial system in history,” explains Ivan Krstić.
Porsche bluffed hedge funds into betting against VW’s stock; when the company later revealed that it owned nearly all of VW’s stock, the hedge funds were forced to abandon their bets, netting Porsche a bundle:
Porsche’s ownership disclosure sent the hedge funds on such a flurry of purchases for any Volkswagen stock still in circulation that the VW share price jumped from below €200 to over €1000 at one point on October 28th, making Volkswagen for a brief time the world’s most valuable company by market cap.
On paper, Porsche made between €30-40 billion in the affair. Once all is said and done, the actual profit is closer to some €6-12 billion. To put those numbers in perspective, Porsche’s revenue for the whole year of 2006 was a bit over €7 billion.
Porsche’s move took three years of careful maneuvering. It was darkly brilliant, a wealth transfer ingeniously conceived like few we’ve ever seen. Betting the right way, Porsche roiled the financial markets and took the hedge funds for a fortune.
Betting the wrong way, Adolf Merckle took his life.
