VW SUFFERS IMAGE LOSS IN WAKE OF CURRENCY SCANDAL
Share analysts and commentators say
Volkswagen AG <VOWG.F> has suffered an enormous loss of face
from which it could take time to recover over its 473 mln mark
currency swindle.
    An auditors' report on the affair, prepared in time for
this week's annual shareholders' meeting, largely cleared the
management of Volkswagen of blame.
    But "mud sticks," said Gavin Launder, an analyst with
Scrimgeour Vickers in London.
    (See index on ECRA)
    The financial daily, Boersenzeitung, wrote in a commentary:
"More devastating than the losses linked to the currency scandal
is the resulting loss of image for the company."
    VW had to make provisions of 473 mln marks to cover losses
from unauthorised foreign exchange deals which the auditors,
Deutsche Treuhand-Gesellschaft, said highlighted major gaps in
the supervisory apparatus of the firm's financial department.
    The auditors' report highlighted failings in VW's
controlling system, especially in relation to a 385 mln mark
deal with the Hungarian National Bank, but shed little light on
why they were made. 
    It said the contracts did not benefit VW and were only
advantageous to its banks. It did not detail how the foreign
exchange dealers may have profitted.
    It concluded: "The nature, scope and technical construction
of the deals ... Suggest a targeted and professionally executed
manipulation to the detriment of VW."
    The head of the finance department, Rolf Selowsky, resigned
days after the scandal broke in March. He is not accused of any
wrongdoing, but auditors concluded he had "not applied the
necessary diligence in all instances."
    Two former VW foreign exchange dealers have been arrested.
    But even VW admits that the report, published last week,
revealed important company failings.
    Peter Frerk, who has temporarily taken over Selowsky's
reponsibilities, said the findings were "not a first class
acquittal." The currency swindle was a "lamentable event for our
company," he told journalists.
    The auditors said the remaining members of VW's management
board and supervisory board had correctly fulfilled their
obligations, a verdict which almost certainly means that major
West German banks, who vote on behalf of large numbers of
shareholders, will ratify both boards at the July 2 meeting.
    Many market analysts, especially in London, do not believe
a sharp rise in VW's share price last week reflects a major
reassessment of the firm on the basis of the auditors' report.
    The stock closed at 430 marks on Friday, up 11 pct from a
week earlier. Dealers referrred to short-term bargain-hunting,
and one London broker said "I'm not sure it's much of a bargain."
Most brokers said they would not recommend clients to buy at
these levels.
    Analysts believe VW will do well to match its 1986 group
net profit of 582 mln marks this year, and one broker in London
said the company would be lucky to report profits only 15 pct
down.
    VW is expected to fare very well both in its home market
and in Europe. But sales have fallen sharply in the U.S and
Brazil, where the latest price freeze could exacerbate results
even further.
    The company hopes to benefit in the long term from its
takeover of the Spanish company SEAT, but this subsidiary is
still producing losses.
    VW has also just announced a deal to build light pick-up
trucks with Toyota Motor Corp <TOYO.T> at an under-utilised
plant in Hanover, but analysts noted production here was only
expected to take off fully in 1990.
 REUTER
