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Volkswagen : SEC Lawsuit Hampers Volkswagen CFO's Efforts to Regain Investor Trust

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03/15/2019 | 05:25pm EDT

By Nina Trentmann and Tatyana Shumsky

The Securities and Exchange Commission's charges against Volkswagen AG dealt a blow to the efforts of its finance chief in his yearslong quest to engage with investors to rebuild trust in the company.

The SEC on Thursday charged the German auto maker, two of its units and former Chief Executive Martin Winterkorn with defrauding U.S. bond investors in connection with its decadelong diesel emissions cheating.

The lawsuit is the latest in a series of civil and criminal matters brought by U.S. authorities against Volkswagen in recent years in connection to the emissions scandal.

Chief Financial Officer Frank Witter, in an email on Friday, said he is in regular contact with investors and that the company's recent debt sales show Volkswagen has progressed in regaining "the trust of capital markets." He added that the company's recent bond sales have been oversubscribed.

Volkswagen re-entered the U.S. bond market in November after a 3 1/2 year absence. The recent bond sales aren't the subject of the SEC's lawsuit.

It has been "a tough week," Mr. Witter said, referring to three events that have weighed down the auto maker.

He cited the company's decision this week to delay the initial public offering of its Traton truck division, and its annual results presentation and capital markets day, during which the company reported weaker profits and announced layoffs as a result of its shift to more electric car production.

The suit is a setback to Mr. Witter's efforts to reintroduce Volkswagen to the capital markets, analysts and accountants said.

"I think it creates additional headwinds that he has to deal with," said Peter Bible, chief risk officer at accounting firm EisnerAmper LLP and a former chief accounting officer at General Motors Co.

The finance chief must now assess the potential cost of this latest lawsuit. This includes deciding how to calculate any damage to investors and how to make them whole, as well as measuring how this latest development will impact Volkswagen's ability to sell new securities to investors, Mr. Bible said.

"People are going to be a little leery in the near term of investing in Volkswagen securities, so that's going to require a premium to attract them," he said.

Investors' willingness to purchase Volkswagen's bonds influence the company's debt costs, particularly as it has several financial instruments that mature this year. This includes a EUR2.5 billion ($2.83 billion) bond that needs to be repaid or refinanced at the end of March.

The auto maker regularly taps the bond market, raising between EUR30 billion and EUR40 billion each year, and expects to continue doing so, a company spokesman said via email.

Mr. Witter, who was promoted to the role of CFO weeks after the emissions scandal broke in September 2015, has played a pivotal role in rehabilitating Volkswagen in the eyes of investors since his appointment, analysts said.

Meeting investors sometimes felt like "speed-dating," Mr. Witter said in a March 2018 interview with CFO Journal. "What I found quite important -- since there was absolutely no trust -- was to be bluntly open about our strengths and weaknesses, particularly also our weaknesses and obviously what we are doing to address them," Mr. Witter said in that interview.

Mr. Witter's outreach culminated in Volkswagen's return to the U.S. bond market last November, its first debt sale in the U.S. since May 2015. The auto maker sold $8 billion in dollar-denominated debt, at the time the year's ninth-largest deal, according to LCD, a unit of S&P Global Market Intelligence.

Still, not everyone has been converted by Mr. Witter's proselytizing. "I have spoken to investors in Europe and in the U.K. that don't invest in Volkswagen because they think the associated risks are too high," said Jürgen Pieper, senior adviser at B. Metzler seel. Sohn & Co. Holding AG, a German bank. "There is still a lot of distrust, even though the situation has improved under Mr. Witter."

Write to Nina Trentmann at Nina.Trentmann@wsj.com and Tatyana Shumsky at tatyana.shumsky@wsj.com

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EBIT 2019 17 371 M
Net income 2019 13 491 M
Finance 2019 25 385 M
Yield 2019 4,15%
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P/E ratio 2020 4,95
EV / Sales 2019 0,19x
EV / Sales 2020 0,16x
Capitalization 71 361 M
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