TheChek News Flow

BaFin filed complaint over potential illegal banking activity by German financier

Prosecutors in Berlin have launched a criminal investigation into Lars Windhorst, the financier whose bonds were at the heart of the crisis at H2O Asset Management.

“The Berlin prosecution office is investigating [Windhorst] over the suspected violation of the German banking act,” prosecutors told the Financial Times, adding that they acted after financial watchdog BaFin filed a criminal complaint.

BaFin declined to comment. People familiar with the matter say regulators are concerned about the activity of an investment vehicle named Evergreen Funding, which is owned by Windhorst.

The FT revealed in 2019 that H2O, a €17bn investment firm, had poured client money into illiquid bonds linked to Windhorst. French regulators last year froze a series of funds at H2O over “valuation uncertainties” on their substantial holdings of the bonds.

Evergreen was set up as part of a plan devised by Windhorst to buy back H2O’s hard-to-sell assets. In June 2020, Evergreen issued a €1.25bn bond, wooing investors with a hefty 12.5 per cent annual interest rate.

However, the Luxembourg-based vehicle’s annual accounts for 2020 show it provided high-interest rate loans worth €272m to Windhorst and held just €263.5m of bonds on its balance sheet.

People familiar with the matter told the FT that BaFin suspected that Evergreen may have engaged in banking activity such as deposit-taking and lending without the necessary licences.

BaFin subsequently froze Evergreen’s bank account in Germany and notified criminal prosecutors in Berlin, where Windhorst’s Tennor Holding has offices. Conducting banking activity without a licence is a criminal offence under German law and can be punished with up to five years in jail.

“We are absolutely certain there is no foundation to the allegations as neither Evergreen Funding nor any of the companies in the group have engaged in regulated banking activities,” a spokesman for Windhorst said, adding that all Evergreen bonds were fully repaid including interest.

He added that the loan listed in the accounts, which was initially granted to Tennor Holding and later transferred to Windhorst, was used to buy back bonds.

Born to middle-class parents in the small town of Rahden in 1976, Windhorst shot to fame as a precocious teenage entrepreneur and was hailed as a wunderkind by then German chancellor Helmut Kohl. But by the time he was 34, Windhorst had weathered the collapse of two companies, personal bankruptcy and a suspended jail sentence.

After that conviction in 2010 for “breach of trust”, the German financier moved to London and began entering into a series of complicated financial transactions involving illiquid debt securities. Several of these deals resulted in litigation, including from billionaire Len Blavatnik and an investment vehicle linked to the former energy minister of Russia.

Despite his legal troubles, Windhorst has continued his frenetic pace of dealmaking, most prominently buying a stake in German football club Hertha Berlin in 2019. He recently joined Twitter in a bid to rebut criticism, noting that “there are always things being reported about my company and me that I cannot and will not leave uncommented”.

H2O still holds more than €1bn of hard-to-sell assets linked to Windhorst and companies in his Tennor group. After the French regulator forced H2O to temporarily freeze its funds last autumn, the asset manager sequestered the troublesome securities into “side-pockets” to the main funds, from which investors cannot redeem. 

The furore caused French bank Natixis to dump its majority stake in H2O, cutting ties to a once highly profitable asset management unit.

H2O declined to comment.

Electric hypercar group Rimac to take control of VW’s Bugatti

Croatian start-up has become one of automotive industry’s most called-upon technology providers

Rimac, the Croatian electric hypercar start-up, will take control of Volkswagen’s Bugatti brand in a deal that cements its position as an established automotive force.

The new company will be called Bugatti Rimac and be led by Mate Rimac, who founded the eponymous group in 2009 in his garage and has grown it to become one of the industry’s most called-upon technology providers.

The company’s electric and battery systems have found their way into cars from Aston Martin and Pininfarina to Jaguar, and the racing arm of VW’s Seat brand.

Being controlled by an electric specialist is also a major departure for Bugatti, which markets its hypercars on 16-cylinder engines and guttural tones.

However, the advent of battery technology has led to speeds that even the most highly-tuned combustion vehicles struggle to match: the upcoming Rimac Nevera is expected to be the fastest model ever built, a title previously held by the Bugatti Chiron.

Rimac said Bugatti would have an electric model this decade but would still produce hybrid models by the end of that period. “We can have two parallel, very distinct product lines,” Rimac said, likening a Bugatti to a Swiss watch and a Rimac to an Apple Watch.

Under the deal announced on Monday, Rimac, which is backed by Porsche and Hyundai, will own 55 per cent of the new company, while VW’s Porsche brand will own the rest.

That means Porsche will control 58.2 per cent of the final company through its existing shares in Rimac if its Rimac stake is included, though the businesses said that the carmaker will not have a say in how the combined unit is run. No money changed hands through the deal, Porsche boss Oliver Blume said on Monday.

It also brings Rimac further under the VW umbrella as the German company embarks on a €35bn electric push, although the Croatian company will spin out its business unit that builds technology for other carmakers.

Both Bugatti and Rimac will continue developing their brands, and while Bugatti’s production will remain in France, all of its research will move into Rimac’s new headquarters in Croatia.

Mate Rimac, who is 32, himself holds 37 per cent of the company, translating to a 20.4 per cent stake of the new Bugatti Rimac group.

“Rimac and Bugatti are a perfect match in terms of what we each bring to the table. As a young, agile and fast-paced automotive and technology company, we have established ourselves as an industry pioneer in electric technologies,” he said.

He added that the hypercar business “should be self-sustaining and profitable on its own”.

Separately on Monday, Porsche’s local rival Daimler confirmed that it would bundle three of its luxury brands — AMG, G-Class and Maybach — into one business unit this autumn, to position itself more effectively in the “top luxury and performance segment”.

Porsche’s decision to put Bugatti in a joint venture will raise hopes among VW investors that similar assets within the group, which are increasingly out of step with the company’s attempt to lead the electric transformation, will be spun off or sold. 

Last December, after a clash between VW boss Herbert Diess and powerful German unions, the company’s supervisory board said that there was “agreement on the board that Lamborghini and Ducati will remain part of the Volkswagen Group”.

In May, Volkswagen rejected a €7.5bn offer for Lamborghini from a Swiss-based investment vehicle led by Rea Stark, who also founded an electric vehicle start-up with Toni Piech, the son of VW’s former chair.

But pressure from capital markets to divest these brands has been mounting. “The message is ‘forget the toys’”, said someone familiar with the discussions between VW and investors. 

Data suggest jab is still 93% effective against serious illness and hospitalisation

The BioNTech/Pfizer vaccine is less effective at halting the spread of the Delta variant than previous strains of coronavirus, according to a preliminary study by Israel’s health ministry.

Data collected over the past month suggest the vaccine is 64 per cent effective at preventing infection among those who are fully inoculated, the ministry has found. Efficacy against previous strains of the virus was estimated at 94 per cent.

However, the figures, first reported in the Ynet news portal, indicate the vaccine is 93 per cent effective against serious illness and hospitalisation.

The study was based on “preliminary” figures relating to the effectiveness of the vaccine gathered continuously by health authorities, cautioned Professor Nadav Davidovitch, who sits on the government’s expert advisory committee on Covid-19.

“Delta is a lot more infectious, but appears to not lead to as much serious illness and death, especially given that we now have the vaccine,” he said.

Cases have ticked up since Israel lifted all remaining Covid-19 restrictions on June 1, with many experts blaming the highly transmissible Delta variant.

As of Monday, the country had almost 2,600 active cases — more than double that of the previous week — though the ministry said only 35 were considered seriously ill.

This year, UK health authorities also documented a drop in efficacy for the Pfizer jab against the Delta variant, though less severe.

Public Health England in May found the vaccine provided 88 per cent protection against symptomatic infection with Delta, and 93 per cent against the Alpha variant first identified in Kent. According to that study, the protection conferred by two doses of the Oxford/AstraZeneca vaccine — largely used in the UK’s mass vaccination programme — was lower, at 66 per cent for the Delta variant.

Israel has enjoyed one of the world’s fastest inoculation drives, emerging from lockdown in the spring. More than 5m of Israel’s 9m citizens have been fully vaccinated with the Pfizer vaccine.

But rising case rates have alarmed the government of Naftali Bennett, which last month reimposed face mask requirements for indoor gatherings and public transport. It is considering additional restrictions, including the reintroduction of the “green passport” scheme for those who have been vaccinated, limits on large public gatherings and “booster” jabs.

A push to inoculate teenagers began last week and more than 100,000 have received a jab, including the prime minister’s daughter.

“If the numbers continue to grow, now doubling every week, we need to vaccinate as quickly as possible the roughly million people still left — 200,000 over 50 years of age, and of course children,” Davidovitch said. “The government will also likely introduce elements of the green pass scheme, mandatory mask wearing, lots of testing, and stricter oversight for all incoming passengers at Ben Gurion international airport.”

Israel’s reaction to a surge in Delta infections stands in contrast with that of the UK, where Prime Minister Boris Johnson is planning to lift all restrictions on July 19.

“I don’t believe it will be like the UK,” Davidovitch said. “We have more vaccinated people here, Pfizer seems to provide better defence than [AstraZeneca], and I don’t believe the government will allow the virus to run rampant. We have to be proportional in our response.”

Pfizer noted that the Israeli data was “preliminary and yet to be fully assessed”. It said that existing evidence, a combination of laboratory tests and real-world studies, showed that its shot worked against a number of variants of concern, including Delta.

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Carmaker must increase sales, particularly in China, to avoid investors becoming twitchy

Volkswagen’s April Fool’s joke about a “Voltswagen” rebranding for its new ID models prompted a regulatory probe. But the German carmaker indisputably succeeded in publicising its ambition to lead the world in electric car sales. That makes its sluggish start to this year’s electric vehicle sales all the more puzzling. 

Volkswagen needs to roughly double its monthly sales figures to meet its goals. It has sold about 126,000 battery electric vehicles in the first five months of 2021. That is more than half last year’s total, but little more than a fifth of this year’s target.

European electric car sales were slow overall in the first quarter, in part because registrations were brought forward to help meet 2020 targets. VW’s sales for these have now accelerated. Lacklustre revenues in China should worry, though, given that market’s importance. Volkswagen expects it to account for more than half its electric vehicle sales by 2030.

Competition is intense there. Volkswagen suffered by launching later than Tesla and local rivals. Critics say the German maker’s models do not have enough of the advanced self-driving and voice-controlled features valued by young, wealthy Chinese consumers. 

Volkswagen dismisses such worries. It says Chinese sales of the latest generation of electric cars, with the first two models officially launched in March, are in line with expectations as it ramps up production and expands its new sales network. It insists it is on track to meet this year’s sales targets for electric cars, with several more models still to launch.

So far, investors have given Volkswagen the benefit of the doubt. Though the shares are down 15 per cent since their April high, they are still up by more than 40 per cent this year. They trade on a forward enterprise value-to-ebitda multiple of almost 8, a tenth above its decade average. 

But shareholders will become twitchy if sales do not pick up soon. Much rides on VW’s appeal to Chinese electric vehicle buyers. Hopes of knocking Tesla off its top spot in global EV sales depends on it.