VW Financial Services takes writedown for emissions scandal
FRANKFURT (Reuters) - Volkswagen's Financial Services AG said on Tuesday it took an extraordinary writedown of 353 million euros (£276 million) to cover a potential decline in the residual value of cars in the wake of the diesel emissions cheating scandal.
"We created extensive reserves on the basis of the leasing portfolio so as to be prepared for any possible decline of the residual values," Chief Executive Lars Henner Santelmann told journalists at a news conference after the VW subsidiary published full-year results.
An admission that VW cheated on emissions tests has hit resale values of its cars, a step which forces VW financial services, which issues leasing contracts to customers, to adjust the presumed resale value of its fleet of leased cars.
To cover the impact at its business in the United States, VW Credit Inc., which is separate from VW Financial Services AG, VW's financing arm set aside an additional 96 million euros in provisions.
Because it is not yet clear what steps will be necessary to resolve a regulatory issue in the United States, it has not set aside money to cover a possible buyback of fleets of cars that do not meet current emissions standards, the company said.
The dieselgate scandal is also expected to hit the car financing company's refinancing costs following a ratings downgrade by Moody's and Standard & Poor's late last year.
"The downgrading of the ratings did not yet have any negative effects on the refinancing conditions in 2015. But this will probably be the case in 2016," Chief Financial Officer Frank Fiedler said.
Nonetheless, VW's financial services arm intends to tap the bond markets in the first half of the year, he added.
In addition to the dieselgate scandal, VW Financial Services is seeing headwinds in emerging markets, where demand has slumped. Risk costs have been hiked to 1.38 billion euros in 2015, from 680 million euros in the year-earlier period, mainly due to lower demand in Russia, India and Brazil.
Volkswagen Financial Services as a whole expects to post a "very good" results in 2016, at least at the 1.7 billion euros it had posted for 2014. Its operating result for 2015 was 1.9 billion euros.
In Germany and many other European countries, VW Financial Services set up new offers which included warranty extensions, maintenance and inspection as well as special financing conditions.
(Corrects penultimate paragraph to show the 2016 target is not for a record but for a result above the 2014 level.)
(Reporting by Edward Taylor; Editing by Maria Sheahan)
