Porsche Begs Germany's Dumbest Bank

When trying to buy VW with the proceeds of derivatives instead of plain old money, Porsche bit off too much it can chew. And they are choking. Volkswagen performed a Heimlich maneuver to the tune of a €700 million loan to save Porsche from extinction by bankruptcy. That loan is not enough, and it’s short term, 6 months max. Porsche was then able to secure a €10 billion bank loan, but had to put the crown jewels of the Porsche family in hock. The €10 billion loan was used to pay off a previous €10 billion loan. The adroit derivatives player turns more and more into someone who uses a credit card to pay off credit card debt. Porsche needs more money. They went to “Germany’s dumbest bank.”

Hat in hand, Porsche turned to the white knight of all auto manufacturers: The government. Would their KfW Bank please loan Porsche €1.75 billion? The Kreditanstalt für Wiederaufbau is a holdover from the post WW II times. It was the bank for the Marshall Plan. Don’t worry, no U.S. money is in the bank—80 percent of it belongs to the German government in Berlin, the remaining 20 percent is held by the German states. The German government guarantees all loans of the KfW.

“As a promotional bank under the ownership of the Federal Republic and the Länder (federal states), it offers support to encourage sustainable improvement in economic, social, ecological living and business conditions,” says the KfW on their website.

Support to encourage sustainable improvement is sorely needed at Porsche. They remembered that KfW had been dubbed “Germany’s dumbest bank” for handing over €350m to Lehman Brothers two hours before the American investment bank collapsed. While other banks withdrew money from Lehman’s as fast as they could, KfW overlooked an automatic transfer of government money.

But they aren’t that dumb anymore.

Porsche is “facing a strong headwind after having handed in their loan application,” Automobilwoche [sub] reports. “Lower Saxony and the Metal Workers Union think the request is inappropriate.” The strong headwind is caused by the usual suspects. Both Lower Saxony as well as the Metal Workers Union consider VW as their own playground. They are opposed to Porsche messing it up. Anything that slows Porsche down is fine by Lower Saxony and the unions.

Instead of money, they give unsolicited advice: “If Porsche has overextended themselves, then it’s appropriate to sell some shares instead of asking for loans,” said Lower Saxony’s premier Christian Wulff. Union boss Berthold Huber suggested, the Porsche and Piech families should ante up more from their private funds. Porsche is treating it as free advice is usually treated.

Not all is lost for Porsche. On Monday, the case may be deliberated by a committee. Or not. In any case, a decision should be reached by June 17th. On that day, the German version of the Ways and Means Committee will congregate, and Porsche is reported to be on the agenda. A hectic rescue operation as for Opel it will be not. “Porsche’s application comes as a host of German companies seek various forms of government help to overcome financial difficulties,” says the Financial Times. A company that not long ago bragged that they were swimming in money can’t hope for a lot of sympathy in an election year.