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Volkswagen Part Deux?

14 January 2016 by lberuti

It was just another day in credit market with commodity related names being slaughtered, when news emerged that RENAUL’s ( Renault SA ) offices had been raided by the French fraud squad last week. While shares of the company dropped 23%, RENAUL’s risk premium shot up from 120bps to 200bps, dragging the whole sector wider, as investors wondered whether something like Volkswagen part deux was about to begin. That initial reaction was eventually faded (the stock closed “only” 11% down and the 5 year CDS 28bps wider at 145bps), when people came to the conclusion that there rea reasons to think this investigation should be less damaging. On the one hand, officials conducting the test believe they won’t uncover defeating device according to RENAUL. On the other hand, RENAUL does not sell car in the US and should be spared the wrath of the Department of Justice, and it is difficult to imagine the French state, which owns 20% of the company, crushing a jewel of the French industry through punitive fines. So far, RENAUL has been less impacted by its own troubles than by VW’s 4 months ago.