Porsche's derivatives success a mystery
Use of derivatives by German car manufacturer Porsche has resulted in a hike in the firms’ pre-tax earnings, from €2.11 billion last year to €5.86 billion for the year 2006/2007.
“We have increased our stake in Volkswagen in several steps and we have had options secured to make sure that, with the rising price of the Volkswagen shares, we would not be negatively affected. There have been significant earnings resulting from those transactions,” said a spokesperson for Porsche.
“Porsche’s strategy is a well-kept secret,” said Georg Stuerzer, co-head of German equity reseach at UniCredit in Munich. “What we know is that it had options to increase its stake in Volkswagen, and that it has made €3.593 billion on these options, but we know nothing of the strategy and whether these were cash profits or down to fair-value accounting based on international financial reporting standards.”
“There are a number of possibilities,” said Philippe Houchois, analyst at JP Morgan in London. “They could have just bought options very early on, which would have allowed them to purchase more Volkswagen shares at a low price. These options would have been in-the-money and would have resulted in a mark-to-market gain of the share price at year-end in July, minus the price paid for the options.”
In addition to the earnings from options, Porsche has benefited from a one-off revaluation of its share in the Volkswagen group, which resulted in a €520.8 million addition to its accounts, and €702.4 million of earnings accrued by its 22.5% share held at the end of the business year.
Earnings from the company’s core business - making cars – have, however, been limited. “What seems to be clear is that Porsche’s earnings have plateaued,” said Houchois. “If you restate the non-recurring earnings, Porsche’s core earnings for actually making cars appear to be down by 30-35%.”
Some, however, say the use of derivatives in the Volkswagen investment has been a smart move. “Porsche is a fairly small company, so it is wise to limit the capital it puts in such a transaction. And if its long-term target is to increase its stake in Volkswagen, then why should it not buy options to secure its entry level?” asked Stuerzer.
See also: Cautious Porsche
Only users who have a paid subscription or are part of a corporate subscription are able to print or copy content.
To access these options, along with all other subscription benefits, please contact info@risk.net or view our subscription options here: http://subscriptions.risk.net/subscribe
You are currently unable to print this content. Please contact info@risk.net to find out more.
You are currently unable to copy this content. Please contact info@risk.net to find out more.
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. Printing this content is for the sole use of the Authorised User (named subscriber), as outlined in our terms and conditions - https://www.infopro-insight.com/terms-conditions/insight-subscriptions/
If you would like to purchase additional rights please email info@risk.net
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. Copying this content is for the sole use of the Authorised User (named subscriber), as outlined in our terms and conditions - https://www.infopro-insight.com/terms-conditions/insight-subscriptions/
If you would like to purchase additional rights please email info@risk.net
More on Risk management
Revealed: the three EU banks applying for IMA approval
BNP Paribas, Deutsche Bank and Intesa Sanpaolo ask ECB to use internal models for FRTB
FICC takes flak over Treasury clearing proposal
Latest plans would still allow members to bundle clearing and execution – and would fail to boost clearing capacity, critics say
Buy side would welcome more guidance on managing margin calls
FSB report calls for regulators to review existing standards for non-bank liquidity management
Japanese megabanks shun internal models as FRTB bites
Isda AGM: All in-scope banks opt for standardised approach to market risk; Nomura eyes IMA in 2025
Benchmark switch leaves hedging headache for Philippine banks
If interest rates are cut before new benchmark docs are ready, banks face possible NII squeeze
Op risk data: Tech glitch gives customers unlimited funds
Also: Payback for slow Paycheck Protection payouts; SEC hits out at AI washing. Data by ORX News
The American way: a stress-test substitute for Basel’s IRRBB?
Bankers divided over new CCAR scenario designed to bridge supervisory gap exposed by SVB failure
Industry warns CFTC against rushing to regulate AI for trading
Vote on workplan pulled amid calls to avoid duplicating rules from other regulatory agencies