Wirecard, once hailed as the darling of Germany’s financial technology scene, is now facing a fight for survival amid scrutiny into its accounting practices.
The payments processor said Thursday, for the fourth time, that it couldn’t publish its financials for 2019. Auditors at EY couldn’t account for 1.9 billion euros ($2.1 billion) of cash on its balance sheet, it said.
Wirecard added that there were indications a trustee tried to “deceive” EY about the existence of those cash balances. To be clear, 1.9 billion euros represents about a quarter of the company’s balance sheet.
Wirecard also suspended management board member Jan Marsalek “on a revocable basis,” according to a separate statement released on Thursday.
But these are just a couple of events in an extensive saga that has seen the financial technology company’s share price collapse thanks to a string of fraud accusations.
Here’s a summary of Wirecard’s rise and subsequent fall from grace.
Where it all began
Wirecard’s origins date back to 1999, when its Berlin-based predecessor InfoGenie was founded. Wirecard listed its shares on Frankfurt’s stock exchange through a reverse merger with InfoGenie in 2005.
Markus Braun, CEO of the technology and financial services company Wirecard, poses in the company headquarters in Aschheim near Munich, southern Germany, on September 18, 2018. (Photo by Christof STACHE / AFP) (Photo credit should read CHRISTOF STACHE/AFP/Getty Images)
CHRISTOF STACHE | AFP | Getty Images
Markus Braun, an Austrian computer scientist, joined Wirecard in 2002 and became both chief executive and chief technology officer of the company.
Braun saw the firm through an aggressive international expansion, launching an Asia-Pacific subsidiary in Singapore and reaching into the U.S. market through the acquisition of Citigroup’s prepaid card services division.
Wirecard’s main line of business is processing electronic payments for merchants. According to its website, Wirecard’s customers include FedEx, Fitbit and Dutch airline KLM. It also owns a licensed-back subsidiary, as well as its own mobile payment app called Boon.
Notable among Braun’s achievements was overseeing the sharp increase in Wirecard’s share price, and its replacement of Commerzbank on Germany’s blue-chip DAX index in 2018.
Once a little-known name, the company had by then gained a reputation as one of Germany’s top tech companies, climbing to the ranks of the likes of SAP and Infineon.
However, Braun’s achievements have been eclipsed for the last 18 months by an investigation into Wirecard’s accounting practices by the Financial Times.
It began in January last year, when the newspaper published a report about the alleged use of forged and backdated contracts at its Singapore office to inflate revenue.
The paper described a practice called “round-tripping,” where allegedly, a series of potentially dubious transactions are made across borders to various units in order to make them appear legitimate to local auditors.
A separate FT story in October claimed that staff at Wirecard’s finance team appeared to conspire to fraudulently inflate sales and profits at subsidiaries in Dubai and Dublin and potentially mislead EY.
An illuminated logo sits on the exterior of Wirecard’s headquarters in the Aschheim district of Munich, Germany.
Michaela Handrek-Rehle | Bloomberg | Getty Images
Wirecard did not immediately respond to a request for comment when contacted by CNBC, but put out a video online on Friday in which Braun said it “cannot be ruled out” that Wirecard was itself the victim of “considerable” fraud. The company has repeatedly denied the FT’s allegations and even sued the newspaper over its reporting, accusing it of colluding with short-sellers.
The FT in turn rejected those accusations, and an external, independent review last year from law firm RPC into the FT’s reporting on Wirecard found no evidence of collusion with market participants.
Missing cash balances
On Thursday, the company made a stunning revelation: Its auditor couldn’t find 1.9 billion euros of cash balances on trust accounts to be included in its 2019 consolidated financial statements.
The situation has thrown Wirecard’s future into jeopardy. The firm says that if it cannot produce audited financials this week, about 2 billion euros worth of loans could be terminated Friday.
It presents a liquidity crunch for the firm, according to Richard Sbaschnig, a senior analyst on the forensic team at investment research firm CFRA. That’s in part due to the fact that 1.7 billion euros of Wirecard’s cash is held by regulated entities — Germany-based Wirecard Bank and U.K.-based Wirecard Card Solutions.
“There are typically regulatory restrictions on accessing this cash for general corporate purposes,” said Sbaschnig.
The company’s market capitalization, once as high as 24 billion euros, has collapsed to less than 5 billion euros. Its share price is down more than 70% since the FT’s investigation was first published on Jan. 30.
On Friday, it’s shares were down 46%, adding to Thursday’s huge 62% loss.
Barry Norris, founder of fund manager Argonaut Capital, which holds a short position in Wirecard, said he believes the company could be “declared insolvent by the weekend.”
“Braun has brazenly tried to portray the company as a victim of fraud and instead tried to focus investors on apparently strong reported revenue growth,” said Norris. “If the cash balances are non-existent, then logic would also suggest that current trading is equally fictitious.”
The firm’s chief has resisted calls from investors to quit. On Thursday, he said it was “currently unclear whether fraudulent transactions to the detriment of Wirecard AG have occurred.”
Has Germany been too lenient?
The debacle will also draw attention to the German state, which has been viewed by some commentators as being too lenient in its handling of Wirecard.
Bafin, the German financial regulator, filed a criminal complaint against two FT journalists to prosecutors in Munich, following Wirecard’s accusations of market manipulation. The watchdog also temporarily paused short-selling in Wirecard stock last year.
Bafin has more recently said it has multiple investigations into Wirecard. The regulator searched the company’s headquarters as part of an investigation targeting the firm’s management board earlier this month.
Analysts have also faced criticism over their assessment of the company.
One analyst from Germany’s Commerzbank notoriously called the FT’s reporting “fake news,” claiming there was “no substance” to the fraud allegations against Wirecard.
Commerzbank eventually backtracked after the FT made a complaint to the bank.