The payment service provider Wirecard, caught up in a billion scandal, is on the brink.
The company wants to file for bankruptcy due to over-indebtedness and impending insolvency, as the board announced on Thursday in a short ad hoc announcement. Large parts of the group may plunge into the abyss: the Wirecard management board checks whether the subsidiaries of the group also have to file for bankruptcy. Wirecard Bank should remain an exception, according to Wirecard, with the consent of the financial supervisory authority Bafin, it will be decoupled financially and organizationally from the parent company. Wirecard employs around 5,800 people worldwide.
There were panic sales on the stock exchange: A few minutes before the announcement, the Wirecard share was suspended from trading. Previously, the paper had sunk below the 10 euro mark for the first time since 2011 via XETRA. In the low, the price was more than minus 80 percent at EUR 2.50 after the share was temporarily suspended from trading for an hour. Previously, it had cost EUR 12.02 a day. Finally, it ended trading for 3.53 euros, which was a minus of 71.28 percent compared to Wednesday.
From today’s perspective, there is no immediate descent from the DAX: “With regular insolvency proceedings, however, the share remains in the DAX until the next regular adjustment date,” a spokesman for Deutsche Börse explained the rules for all DAX member companies. The next regular adjustment date is September 3rd. Then, however, Wirecard no longer has a chance to remain among the top 30 German heavyweights: the company was worth less than half a billion euros on the stock exchange in the afternoon.
At Wirecard, an expert is now commissioned to assess the company’s situation. In the next major step after the bankruptcy application has been received by the Munich district court, a provisional insolvency administrator will be appointed. A key question at Wirecard will be whether the company can continue to operate.
According to Wirecard, a total of 1.3 billion euros in loans for which no replacement is in sight will expire in the middle of next week: “Without an agreement with the lenders, there was a probability of the termination and expiry of loans with a volume of 800 million euros by the 30th June 2020 and 500 million euros as of July 1, 2020. ” The continuity of the company was “not guaranteed”.
Bankruptcy by Wirecard could be expensive for a number of banks, which have provided the company with up to EUR 1.75 billion via a credit line according to a bond prospectus. As leading institutes, these include Commerzbank and Landesbank Baden-Württemberg (LBBW), the Dutch ABN Amro and the German subsidiary of the Dutch ING.
According to the news agencies dpa and Bloomberg, the banks had only granted Wirecard a few days to check the long-term viability of the company before claiming back the outstanding amount.
A DAX group that was still considered solvent and promising just a week ago has slipped into the abyss at breathtaking speed. The investor association DSW demanded full clarification. “This is a disaster,” said CEO Marc Tüngler. “The system has failed at Wirecard” – this applies to the board of directors and the supervisory board as well as to the auditors of the company EY, which audited the annual financial statements, and the official supervision by Bafin.
EY itself assumes serious crime on a quasi-global scale. “There is clear evidence that this is a comprehensive fraud involving several parties around the world and in various institutions with deliberate intent to deceive,” said EY in Stuttgart. “As part of the final audit for the 2019 financial year, EY discovered that fake balance confirmations and other falsified documents were submitted for the escrow accounts.” EY had informed the responsible authorities as well as the company and its supervisory board.
“Conspiracy fraud aimed at deceiving investors and the public is often accompanied by extensive efforts to systematically and on a large scale falsify documents,” the statement said. “Even with extensively expanded audit procedures, it may not be possible to detect this type of conspiratorial fraud.”
The Wirecard case became a political issue at the latest when bankruptcy was announced: Bafin financial supervision could have intervened at an early stage, criticized the Green Group leader Toni Hofreiter. “Olaf Scholz and Peter Altmaier as the responsible ministers have a special responsibility here. They have to explain the misconduct of their authorities.”
“This case must be fully resolved so that we can learn from it,” said DSW general manager Tüngler. “It shouldn’t work like Volkswagen again, dragging it for years and then ending with a fine.”
At the center of the scandal are alleged air bookings amounting to 1.9 billion euros. The immediate trigger of the crisis was the admission of financial irregularities on Thursday last week.
CEO Markus Braun resigned on Friday, and Wirecard then admitted the air bookings on Monday. The 1.9 billion that were supposed to be in Philippine trust accounts do not exist with “predominant probability”, as the board put it. Braun was put in custody for one night, but was released on Tuesday on bail of five million euros.
As a payment service provider, Wirecard handles cashless cash flows between retailers on the one hand and banks and credit card companies on the other. The clarification will be difficult simply because a significant part of the affair took place in Southeast Asia: two central figures are the former Wirecard CFO in Southeast Asia and a trustee who was active for Wirecard in Singapore until the end of 2019. The company oversaw – as it has now emerged – in large parts probably non-existent business with third-party companies that allegedly processed payments for Wirecard in the Middle East and Asia.
The affair set in motion by the British “Financial Times”, which reported suspected manipulations in Singapore in early 2019. As the Wirecard share price subsequently fell sharply on the Frankfurt stock exchange, the financial regulator Bafin and the Munich public prosecutor’s office had first initiated investigations into whether there were illegal maneuvers by stock market speculators.
Now there is astonishment: “This is very difficult to grasp in terms of size,” said DSW general manager Tüngler.
Wirecard filing for bankruptcy inspires international competitors
The news of the bankruptcy filing of the German payment processor Wirecard, which was involved in a balance sheet scandal, caused the prices of international competition to rise on Thursday. In Paris, the French payment service provider Worldline led the leading index CAC 40 with a premium of more than four percent, for Adyen it was recently around two percent to 1287 euros. The Dutch payment processor’s share was thus closer to Tuesday’s record of € 1317.
Adyen’s shares had initially been in the loss zone on Thursday, but the bankruptcy petition from competitor Wirecard then caused a change of direction. The shares had plummeted to below EUR 700 in the wake of the Corona crash – since then the price has almost doubled. Wordline papers already cost twice their Corona lows, and are now a good six euros away from the record they reached in February at just under 78 euros.
Cyan AG affected by Wirecard bankruptcy
Cyan AG has receivables from a Wirecard AG subsidiary, Wirecard Technologies GmbH, in the amount of EUR 5.0 million. Of this, a total of 4.8 million euros were booked as sales in the 2019 financial year in accordance with the IFRS accounting regulations, the specialist for technology security solutions said.
If Wirecard Technologies GmbH, like the parent company, went bankrupt and the receivables became uncollectible, this would likely have an impact on EBITDA 2020, Cyan said. However, there are no effects on operational development and sales in 2020.
Due to the pandemic, management has already adjusted growth investments to the shifted sales revenues. Thanks to the existing cash position and further financing commitments, the company sees itself as solidly financed despite Covid-19 and Wirecard.
Wirecard bankruptcy: Ministry of Finance examines more competencies for Bafin
As a lesson from the Wirecard bankruptcy, the Federal Ministry of Finance wants to put the competencies of the financial supervision Bafin to the test. “We have to look at Bafin to see what went wrong. We have to consider whether Bafin’s opportunities to intervene are sufficient. Whether companies like Wirecard AG, which effectively provides financial services, cannot be supervised as a whole as a financial service provider” State Secretary Jörg Kukies told the news portal “The Pioneer” (Thursday). The ministry is now examining a reform very intensively: “Everything has to be relentlessly put up for discussion. It is quite clear that we have to take consequences.”
ASCHHEIM (awp international) / FRANKFURT (Dow Jones)
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