November 29, 2007
Options on options on options at Porsche
Oh dear. There is an ominous story in the FT today about Porsche and its finance director Holger Härter, who has pepped up the treasury operations of the German car maker and taken out various hedges against currency risks, notably the decline of the dollar.
The stubbled Mr Härter is apparently basking in the admiration of journalists, one of whom asked him if he was "a financial genius" at Porsche’s results press conference on Wednesday. He told my colleague Richard Milne that Porsche had adopted a complex trading strategy involving "options on options on options", adding prudently that Porsche is "not interested in speculation".
Well, yes, but currency trading and hedging is a zero sum game and I shudder when I hear of creative Treasury management at industrial companies or public institutions.
Mr Härter should recall the debacle in Orange County. Or, for that matter, take a look at Norway where four towns have suffered from investing in complex US-linked debt securities sold to them by Terra Securities. When big banks offer you innovative financial instruments, beware.
