Volkswagen shares climb on hopes U.S. emissions deal marks turning point

By Andreas Cremer

BERLIN (Reuters) - Volkswagen's supervisory board is meeting on Wednesday to approve a draft $4.3 billion settlement with the U.S. Justice Department, marking a milestone in its attempts to recover from its emissions test cheating scandal.

Shares in Europe's biggest carmaker rose as much as 4 percent as investors welcomed the latest move to draw a line under the biggest business scandal in its 80-year history.

However, the 16-month saga could still have further to run, with U.S. authorities investigating who was individually responsible for the cheating and Volkswagen (VW) facing probes and lawsuits in Europe and elsewhere.

"This is a partial victory, but VW is by no means out of the woods yet," said Ingo Speich, a fund manager at Union Investment which holds about 0.6 percent of VW preference shares. "There are still considerable litigation risks."

"Facts need to be revealed now and, if necessary, further steps need to be taken regarding individuals to regain the trust of capital markets," Speich added.

VW said after the market close on Tuesday it was in advanced talks over a civil and criminal settlement with the U.S. Justice Department over its diesel emissions test cheating, and planned to plead guilty to criminal misconduct.

It warned the deal meant it would exceed the 18.2 billion euros ($19.2 billion) it has set aside to cover the costs of its wrongdoing, and it has yet to quantify the impact on its 2016 group results.

Most analysts had expected the U.S. settlement, which VW has raced to conclude before the Obama administration bows out on Jan. 20, to cost the carmaker around 3 billion euros.

VW admitted in September 2015 to installing secret software in hundreds of thousands of U.S. diesel cars to cheat exhaust emissions tests and make them appear cleaner than they were on the road, and that as many as 11 million vehicles could have similar software installed worldwide.

Despite the scandal, the group said on Tuesday it notched up record sales last year, led by premium brands Audi and Porsche, though analysts say it may have offered big discounts on VW brand cars which have suffered most from the crisis.

At 1255 GMT, VW shares were up 2.8 percent at 150.15 euros, up sharply from their low of 86.36 euros after the scandal broke, but still short of pre-crisis levels above 160 euros.

STILL QUESTIONS

Sources familiar with the matter told Reuters on Tuesday the Justice Department settlement would not end its investigation into individual misconduct and more executives could face charges after Oliver Schmidt, who was a manager in charge of VW's environmental and engineering office in Michigan, was charged on Monday with conspiracy to defraud.

Erik Bomans, a managing partner at Deminor which is working with some investors on a claim against VW, said those responsible for the scandal had to be brought to justice.

"What we hope is that there has not been a trade-off in the discussions between Volkswagen and the U.S. Department of Justice, a trade-off that could be 'we as a company plead guilty and we are willing to pay a big fine, but in exchange for that, you, Department of Justice, you allow us ... not to mention anything about the personal involvement of certain key, senior managers of the company'," he said.

Greg Archer, director of clean vehicles at green campaigners Transport and Environment, said VW's admission of criminal misconduct in the United States was unlikely to have implications for lawsuits in Europe, where a loophole in the regulations has effectively allowed carmakers to routinely exceed official emissions limits.

The European Commission in December began legal action against Germany, Britain and five other EU member states for failing to police emissions test cheating.

"They are ineffective and they are in urgent need of reform," Archer said of the national regulators responsible for approving new vehicles in the EU.

Vera Jourova, the European Commissioner for justice and consumers, is due to meet VW Chief Executive Matthias Mueller early next month to "make sure EU consumers get a fair treatment," her spokesman told Reuters on Wednesday.

($1 = 0.9472 euros)

(Additional reporting by Edward Taylor, Simon Jessop and Alissa de Carbonnel; Reporting by Andreas Cremer; Writing by Mark Potter; Editing by Susan Fenton)