FRANKFURT/NEW YORK (Reuters) –
Volkswagen AG () briefly became the world's largest company by market value on Tuesday as its share price almost doubled after Porsche Automobil Holding SE () set plans to raise its stake, triggering a squeeze for short-sellers.
Shares of Morgan Stanley (MS.N), Goldman Sachs Group Inc (GS.N) and France's Societe Generale () tumbled on speculation they were caught in the squeeze. The U.S. banks later recovered all their losses and closed higher, amid a broad stock market rally.
Porsche on Sunday said it had accumulated indirect control of 74.1 percent of Volkswagen, and planned to raise its stake in the world's third-largest automaker to 75 percent in 2009.
The increased stake would leave less than 6 percent of Volkswagen's shares still floating in the market. Porsche said its stake included 42.6 percent of Volkswagen voting stock, and options for a further 31.5 percent. It had previously reported a 35.1 percent stake in voting shares.
Volkswagen shares rose as much as 93.3 percent in Tuesday trading, giving it a market value of 296 billion euros ($376 billion), surpassing the $343 billion that Exxon Mobil Corp (XOM.N) was worth on Monday. The automaker's shares closed up 81.7 percent, rising 425 euros to 945 euros.
Dealers said traders who had sold borrowed Volkswagen shares, hoping to buy them back at lower prices, panicked at Porsche's announcement.
"There will be a big surprise at some point who will have all these losses, because someone must have lost a lot of money," said Christian Schick, head of portfolio management in Germany for Fortis Investments.
BANK SHARES TUMBLE; SOME RECOVER
Speculation about SocGen's, Morgan Stanley's and Goldman's involvement fanned worries about the industry's ability to weather a credit crisis that has led to the demise of several large financial companies and prompted government interventions worldwide to avert a financial system collapse.
SocGen shares fell 4.67 euros, or 12.3 percent, to 33.34 euros, and were the second-largest percentage decliner on France's benchmark CAC-40 index (.FCHI), Reuters data show. Credit Agricole SA () fell 13.4 percent.
In the United States, shares of Morgan Stanley fell as much as 26.1 percent and Goldman as much as 11.5 percent, before optimism that central banks will lower benchmark interest rates drove major U.S. stock indexes to gains of between 9.5 percent and 10.9 percent.
Morgan Stanley closed up $1.47, or 10.7 percent, while Goldman rose 69 cents, or 0.7 percent, to $93.57. Both, however, lagged the Standard & Poor's Financials Index (.GSPF), which rose 12.5 percent.
Goldman declined to comment, but people inside the company said it had no Volkswagen losses. Morgan Stanley spokesman Mark Lake said that company has no exposure to the automaker. SocGen could not immediately be reached, but earlier Tuesday said it was sticking with its third-quarter earnings forecast.
"There have been several 'black swan' events occurring in the markets, and there are concerns that they will lead to large losses," said James Ellman, president of Seacliff Capital in San Francisco.
A black swan event is something that a risk management model could not have predicted, or something expected to occur particularly rarely -- such as a "once in a century" event -- but which occurs more often.
MITSUBISHI STAKE
An equity derivatives strategist who asked not to be named said many large market participants might have been caught because of the large number of shares Porsche took on.
Concern about Morgan Stanley were already elevated after Mitsubishi UFJ Financial Group Inc (8306.T) this week said it would raise up to $10.6 billion to replenish a depleted capital base. The bank is Japan's largest, and recently spent $9 billion on a 21 percent stake in Morgan Stanley.
"Like peers that have either gone bankrupt or were forced to sell, we believe fundamentals were sound enough to overcome problem asset exposures, but there is no antidote for unbridled fear," Fox-Pitt Kelton analyst David Trone wrote.
Credit default swaps on Goldman widened 25 basis points to 320 basis points, or $320,000 per year for five years to insure $10 million of debt, Phoenix Partners Group said. The cost for Morgan Stanley widened 35 basis points to 435 basis points.
(Additional reporting by Christiaan Hetzner, Alexander Huebner, Tyler Sitte and Sabine Wollrab in Frankfurt; Olesya Dmitrocava in London; Matthieu Protard and Sitaraman Shankar in Paris; and Karen Brettell, Elinor Comlay, Joseph A. Giannone, Juan Lagorio, Christian Plumb and Dan Wilchins in New York; Editing by Gary Hill)
(1 euro = US$1.269)