Former German high-flyer seeks bankruptcy, capping turbulent week

It is the first such filing by a member of Germany’s prestigious Dax index since it was founded 32 years ago

Wirecard - a German payment provider company viewed just a week ago as a strong, solvent company - filed for bankruptcy on Thursday as it continues to reel from the news that vast sums on its ledger might have never existed.

As dpa reminds, the troubles began a week ago when the company surprised investors by delaying a quarterly report after it emerged that there was a €1.9bn ($2.1bn) hole in its accounts. The situation worsened when it announced the missing funds likely never existed.

Wirecard's problems were only compounded on Thursday as stock markets gave it a beating. Its shares lost 80% of their value as investors fled, during a rough week that means the company has lost 90% of its value since last week's report delay. By the end of the day, its shares were worth €4 a piece, meaning it is now only worth €500m.

Because it has filed for insolvency, other procedures will also kick into gear, meaning the company will almost certainly exit the Dax, the trading index for Germany's top 30 companies, on 3 September. The bankruptcy filing was confirmed by the district court of the city of Munich, where Wirecard is based. The decision to file, "due to impending insolvency and over-indebtedness," was taken by the management board of Wirecard AG earlier in the day. Attorney Michael Jaffe will be the insolvency administrator. He previously oversaw the bankruptcy of P&R, a company that rented out non-existent containers, swindling thousands of investors.

There is some urgency to the insolvency request. The company has €1.3bn in debt due to be repaid next week and, at this moment, no funds with which to pay.

Auditor firm EY said it sees signs of serious criminal behaviour.

"There are significant signs that the issue here is one of massive fraud," it noted, saying multiple groups around the world were likely involved.

EY said it had noticed the discrepancies that led to Wirecard delaying the release of its 2019 figures. But EY has been Wirecard's primary auditor for years, meaning questions about how the situation could have become so out of control will likely trickle back to the auditor firm.

Germany's Finance Minister Olaf Scholz called the case a "scandal that is unparalleled in the financial world" and said it should be a "wake-up call" to prompt a tightening of oversight structures for financial markets.

A group of German investors demanded a probe on Thursday.

"This is a catastrophe," said Marc Tuengler, chief executive of the DSW investors' group. "The system failed us with Wirecard," he said, with an eye on regulatory agencies, but also the company's board and management.

"This case has to be cleared up completely so that we might learn from it," he said, noting another recent German business scandal, Volkswagen, where efforts to cover up excessive vehicle emissions blew up in 2015, leading to multiple lawsuits.

"A Dax company has never had a problem of this range and scope before, heading to insolvency within a week," he argued, saying the speed indicated the problems with the company were "much bigger than we had been aware of until now."

But parts of the company might still be salvageable. The insolvency petition specifically excludes the subsidiary Wirecard Bank AG, with the company saying it has asked financial services regulator Bafin to appoint a new overseer so that the bank can continue with separate operations from the main firm.

Wirecard's former chief executive, Markus Braun, was arrested on Tuesday on charges that he inflated Wirecard's total assets and sales revenues. He has been released on bail.

Wirecard had claimed that the missing funds were in accounts in South-East Asia, but the company later admitted the "prevailing likelihood" that these accounts never existed. On Sunday, the Philippines' central bank said none of Wirecard's missing billions had entered the country's financial system, despite initial claims that the company had accounts at two of the country's largest banks.

Both the BDO Unibank Inc and Bank of the Philippine Islands (BPI) have denied Wirecard was their client and noted that documents linking them to the money were fake.

Braun stepped down late last week, and his one-time right-hand man, Jan Marsalek, was fired by the supervisory board. Marsalek had been in charge of the day-to-day running of the business, which offers a number of services linked to e-commerce and digital payments, with clients including Dutch airline KLM and FedEx.

The Philippines' Bureau of Immigration has said that it is checking travel records to determine whether Marsalek is in Manila, after the country's justice minister ordered a money-laundering probe into the company.

Meanwhile, Singapore police are pressing on with investigations into Edo Kurniawan, the former head of accounting at Wirecard in the city-state.

In the lastest developments on the issue, Brussels announced it will also call for a probe into whether BaFin, Germany’s banking regulator, failed in its supervision of Wirecard, warning that the payment company’s collapse poses a threat to investor trust in the EU. 

Valdis Dombrovskis, the EU’s executive vice-president in charge of financial services policy, told the Financial Times that he was writing to the bloc’s top markets supervisor asking it to assess BaFin’s handling of Germany’s fallen fintech champion.

Dombrovskis said the EU should be prepared to pursue a formal investigation into the German regulator for “breach of union law” if the preliminary probe by the European Securities and Markets Authority discovered shortcomings in BaFin’s upholding of EU rules on financial reporting.

“We will be asking Esma to investigate whether there have been supervisory failures and if so to set out a possible course of action,” Dombrovskis told the FT. “We need to clarify what went wrong.” He will set a mid-July deadline for Esma to reply.

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