Wirecard is fighting for its future

For this purpose, employees stand together in small groups around the headquarters, which is somewhat hidden behind green spaces and train tracks, and have discussions. “I assume that I have to look for a new job,” complains one employee.

There were still no layoffs among the 1,500 or so employees at the headquarters in the Munich suburb of Aschheim. However, many expect it. The first exemptions are said to have already taken place around the world.

The reason for the excitement is an ad hoc announcement that was sent out shortly before three in the morning: “Based on further audits, the Wirecard AG board of directors is currently assuming that the bank balances previously shown in favor of Wirecard are in trust accounts There is an overwhelming probability that there will be a total of 1.9 billion euros.

Wirecard had previously assumed that these accounts existed and reported them as assets.

Then there is a possibly even more important sentence: “The Management Board also assumes that the previous descriptions of the so-called third-party business by the company are incorrect. The company is further investigating whether, in what way and to what extent this business was actually carried out in favor of the company. ”

The possibility that the missing 1.9 billion euros – a quarter of the balance sheet total – could be a fraud case is becoming more and more likely. At the same time, a serious suspicion becomes concrete: do parts of the Group’s previously booked business not even exist?

Wirecard earns money from the transfer. In Europe, the group has its own licenses, processing payments for Aldi or the Austrian Federal Railways, for example. However, the growth driver was business in Asia, in emerging countries such as the Philippines and Indonesia.

Wirecard relies on so-called third parties, their licenses and contacts; the trust accounts were also required for this. Now it is questionable whether the business in the reported size existed at all.

Overseers practice self-criticism

The shock waves of the nightly announcement were felt in many places on Monday. The rating agency Moody’s completely removed the credit rating from Wirecard because there is too little reliable information for an assessment of the creditworthiness.

Wirecard was also a hotly debated topic at the “Frankfurt Finance Summit” industry meeting. Felix Hufeld, head of German financial supervision Bafin, was self-critical. He was horrified that something like this could happen in a country like Germany that stood for quality and reliability: “It is a complete disaster.”

In addition to criticism of the management of Wirecard and the auditors, criticism of the Bafin is also justified, said Hufeld. “Many private and public institutions, including my own, were not effective enough to prevent this from happening.”

The Bafin had taken various measures in the Wirecard case, but not with the desired success. The Bafin is now trying everything to protect the Wirecard Bank, Hufeld emphasized. “However, I do not know whether this can be successful if the group as a whole goes bankrupt.”

Finance Minister Olaf Scholz (SPD) said he saw no need for regulatory changes because of the scandal. “I think the regulators worked very hard,” said Scholz. “They did their job.”

At the same time, Hufeld rejected allegations that the Bafin wanted to protect a German company from foreign attackers for patriotic reasons when the authority banned betting on price losses in 2019. “This is total nonsense.”

If the Bafin gets any information that traders want to manipulate prices through their positioning, the authority must intervene. The information came from a large German public prosecutor.

The Munich public prosecutor is already investigating the old board for market manipulation. This involves two ad hoc releases relating to the publication of KPMG’s special audit report. Wirecard had initiated a special audit in October after numerous press reports from the Financial Times newspaper, which had fueled suspected balance sheet manipulation. The result presented in April had raised further doubts.

When the long-time auditor EY did not want to test Wirecard’s annual balance sheet last Thursday due to falsified bank documents, the course crashed.

The board member responsible for Asian business Jan Marsalek was initially suspended, on Monday his contract was “extraordinarily terminated”. The long-time CEO Markus Braun resigned and was replaced by the new Compliance Board James Freis. The American must now save Wirecard from falling.

The old leadership faces further investigations. A spokesperson for the Munich Public Prosecutor’s Office said that all possible crimes are being examined. Marsalek is the central head of the Asian business within the group.

The 40-year-old Austrian was on site every month and maintained contacts, often alone, report insiders. The Asian business took place primarily in emerging countries, not in highly developed countries such as Japan or South Korea, and according to a Wirecard manager within the group was considered a kind of black box.

Trust accounts with Filipino banks

At the center of the scandal are escrow accounts at two Filipino banks. The money was supposed to serve as collateral for loans granted to traders. Because cashless payments are on the upswing in Asia, the amount in trust accounts is said to have almost doubled since 2018: from 1.0 to 1.9 billion euros.

In December 2019, Wirecard switched from his previous trustee in Singapore, Citadelle, to a new trustee, the Filipino lawyer Mark Tolentino.

According to the original presentation, he also opened the accounts at the Philippine banks. However, they have now identified the relevant documents as forged and dismissed the responsible employees.

So far, Wirecard has always opened the bill: half of the business comes from countries with its own licenses, the other half from third-party business. In 2018, almost half of the Group’s profit came from Europe, around 40 percent came from Asia – whereby Asia’s contribution to earnings has risen disproportionately recently.

Both the business with its own licenses and that with third parties fell under the “Payment Processing & Risk Management” segment at Wirecard. It was the largest and most lucrative area recently. According to the 2018 balance sheet, a profit of 481.3 of the total of 560.5 million euros was generated there. Wirecard has not shown how high the profit contribution from third-party business was.

Wirecard has grown reliably by around 30 percent per year for a long time. In line with sales and profits, the group’s assets also rose, including the funds in the trust accounts.

According to official figures, wealth in Asia has grown steadily in recent years, while there has been little increase in Europe, America and Africa. Wirecard employs around half of its more than 5000 employees in Asia. The employees in the Singapore branch had to deal with the local third party partners and trustees.

Negotiations with banks

After the fundamental doubts about the Asian business, the question now is: How valuable is the rest of Wirecard? Despite the worrying news from Aschheim, creditors are still negotiating to extend a line of credit for a total of EUR 1.75 billion.

The consortium could actually call the loan immediately because Wirecard still has no certified balance sheet for the past year.

But for the 15 or so financial institutions led by Commerzbank, Landesbank Baden-Württemberg and the major Dutch banks ING and ABN Amro, the first step is to gain a few days to get a detailed overview of how much capital and liquidity is still available at Wirecard, it is said in financial circles. For this purpose, the financial institutions also want to use external consultants.

The goal is still to reach a preliminary agreement on an extension of the credit lines by the end of the week. Should there be such an extension, it will probably only be for a short time and would have to be renewed regularly because the situation at Wirecard is extremely dynamic.

The Bank of China is already considering ending its credit line, according to the Bloomberg news agency. In order to ensure the “continuation of business”, Wirecard is now examining deep cuts, “including cost reductions as well as restructuring, divestment or discontinuation of business units and product segments”.

The employees in front of the headquarters in Aschheim still hoped for a positive turn on Monday. “There should still be someone in the financial world who takes over our company in view of the low exchange rate,” says one employee.

More: The desperate search for the Wirecard billion – shareholder representatives are examining lawsuits

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