VW CURRENCY LOSSES SEEN INVOLVING SEVERAL TRADERS
The extraordinary foreign exchange
loss of 480 mln marks reported last week by Volkswagen AG
<VOWG.F> (VW) is so large that outside currency traders were
probably involved in the case, currency sources said.
    They were commenting after weekend newspaper reports that
prosecutors were transferring the focus of their enquiries to
Frankfurt, West Germany's main foreign exchange centre.
    Volkswagen announced last Tuesday that it had called in
prosecutors to investigate a possible fraud involving currency
hedging.
    The newspaper Welt am Sonntag said the investigation by
state prosecutors was now considering whether the alleged VW
currency manipulators had outside banking accomplices.
    The transactions were only possible, "because the culprits
possessed genuine bank forms, with the help of which they were
able to deceive controllers for years," the newspaper said.
    But currency sources said there were so many loopholes in
every bank's currency dealing system that controls could easily
be avoided.
    Rolf Selowsky, financial member of the management board,
has resigned in the wake of the affair, a VW spokesman said.
    Selowksy's resignation followed a VW announcement on Friday
that foreign exchange chief Burkhard Junger had been dismissed
and Guenther Borchert, head of the financial transfer
department, had been suspended along with Siegfried Mueller,
head of the central cash and currency clearing.
    Four other members of the foreign exchange staff were also
suspended, but no charges have been laid.
    VW Supervisory board chairman Karl Gustaf Ratjen said
entire data tapes had been erased and programs altered in
forged transactions.
    Der Spiegel magazine said VW financial controllers
discovered the uncovered positions on February 18 when VW
expected a currency forward contract with the Hungarian
National Bank to mature, but Hungarian bank officials said they
knew nothing of the transaction and the supposed contracts were
forgeries.
    The Budapest-based bank refused to buy the dollars and has
not commented on the affair.
    The Hungarian National Bank is, along with the Soviet Bank
of Foreign Trade, one of two major East Bloc currency traders
and most major banks based in Germany deal with it regularly.
    It would not be possible, the sources said, for any bank to
renege on a genuine forward contract since this would
immediately become known and effectively prevent the bank from
operating further in the spot or forward currency markets.
    Longer-maturity forward contracts, even contracts of up to
10 years, were now becoming more common, they said but the
longer and larger the contract, the more likely it was that it
would be transacted with a domestic institution.
    Being one of Germany's most diversified multi-nationals, VW
has exposure in a large number of currencies and dealt in these
with most banks in Frankfurt and also abroad, sometimes through
currency brokers, although it has the reputation of doing
relatively little hedging, currency sources said.
    "They (VW) are always in the market, more or less trading as
a bank," one senior dealer said.
    Some newspaper reports said the losses were incurred
because of VW's failure to take out currency hedging contracts
beginning at the end of 1984, when the dollar was rising.
    But the currency sources said market speculation was that
dollar income of around one billion dlrs was involved and that
the bulk of the transactions occurred last year since which
time around 50 pfennigs per dollar was lost when the dollar
fall continued.
    Longer-maturity currency contracts for more than 100 or 200
mln dlrs each were rare. Taking several in this size out with a
single bank would be easily spotted by financial controllers.
    One senior dealer for a German bank said, "There's no way
they can have hoped to get away with it. It's too big."
    The sources added that the involvement of the Federal
Criminal Office (BKA) in Wiesbaden could indicate that the
investigation would lead outside Germany.
    BKA has the mandate to handle criminal cases that may
involve foreign police forces or supranational services such as
Interpol. However the branch also handles cases that transcend
federal state borders within Germany.
 REUTER
