Volk­swa­gen ad­mits its for­mer CEO knew of ir­reg­u­lar­i­ties

The Pak Banker - - COMPANIES/BOSS -

Volk­swa­gen's state­ment that its for­mer CEO may have over­looked warn­ings about prob­lems with diesel emis­sions in the United States prompted at least one an­a­lyst to raise his tar­get price on the stock on Thurs­day and lifted its shares.

A VW state­ment late on Wed­nes­day did not con­tra­dict its pre­vi­ous po­si­tion that no top man­agers were in­volved in cheat­ing U.S. emis­sions tests, but it did say that Martin Win­terkorn was alerted to ir­reg­u­lar­i­ties as early as 2014.

"Whether and to which ex­tent Mr. Win­terkorn took no­tice of this memo at that time is not doc­u­mented," VW said.

In its most de­tailed ac­count yet of the events lead­ing up to "Diesel­gate", VW main­tained, how­ever, that Win­terkorn did not know that "de­feat devices" de­signed to cheat emis­sions-tests were in­volved un­til two weeks be­fore the mat­ter be­came pub­lic.

It ar­gued it had not failed in its duty to in­form share­hold­ers of the loom­ing prob­lem be­cause it had had no idea un­til the U.S. En­vi­ron­men­tal Pro­tec­tion Agency re­leased its state­ment on Sept. 18 how ex­pen­sive the af­fair could be­come.

An­a­lyst Stu­art Pear­son at Ex­ane BNP Paribas saw the state­ment as in­cre­men­tally pos­i­tive for VW's de­fense against claims from share­hold­ers that it did not in­form them of the loom­ing prob­lems in time, caus­ing them mas­sive losses.

Volk­swa­gen shares have lost more than a third of their value since the scan­dal broke out on Sept. 18.

Pear­son cut his es­ti­mate of VW's le­gal li­a­bil­ity by €1 bil­lion ($1.1 bil­lion) to €10.7 bil­lion and raised his tar­get price by €2 to €138, keep­ing his "out­per­form" rat­ing.

"VW's firm re­jec­tion of emis­sions risk dis­clo­sure vi­o­la­tions and de­tailed ac­count of the se­quence of events re­duce - but do not re­move - the risk of share­holder suit li­a­bil­i­ties," he said.

Volk­swa­gen shares dropped more than 3% in early trad­ing but by early af­ter­noon turned pos­i­tive, out­per­form­ing the Ger­man blue-chip in­dex.

The scan­dal is likely to cost Volk­swa­gen tens of bil­lions in re­call and le­gal costs, not count­ing dam­age to its rep­u­ta­tion or sales, which have al­ready taken a hit in the United States, a mar­ket where it has in any case strug­gled to es­tab­lish it­self. Oth­ers were less con­vinced of

pos­i­tives in news that

any Win­terkorn, who re­signed af­ter Volk­swa­gen's big­gest-ever cor­po­rate scan­dal ex­ploded in Septem­ber, was warned in a memo in­cluded in his "ex­ten­sive week­end mail" in May 2014 about a study rais­ing ques­tions about diesel emis­sions.

"Ar­gu­ing that its CEO was too busy will un­likely im­press reg­u­la­tors or judges," wrote an­a­lyst Arndt Ellinghorst of Ever­core ISI. "VW is now ad­mit­ting that top man­age­ment did re­ceive memos on the mat­ter."

Win­terkorn said on his res­ig­na­tion five days af­ter the scan­dal broke that he was "not aware of any wrong­do­ing" on his part. The law firm rep­re­sent­ing him did not im­me­di­ately re­ply to a re­quest for com­ment.

The im­pact of the scan­dal was felt in VW's lux­ury car divi­sion Audi, which has also ad­mit­ted to hav­ing used il­licit emis­sions-con­trol devices in the United States, which re­ported on Thurs­day that costs re­lated to emis­sions test­ing cut its op­er­at­ing profit by €228 mil­lion in 2015.

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