House of Cards: Wirecard Management Says Ability to Continue as a Going Concern is Not Assured

Yesterday, it was reported that Wirecard AG (WDI:DE) had initiated bankruptcy proceedings as the company attempted to stave off a complete financial collapse created by a misplaced amount of funds totaling around €1.9 billion. Allegations of profound actions of fraud immediately followed as the former CEO, Markus Braun, was arrested and the former COO was reported to have absconded to Asia.

There was plenty of finger-pointing as rumblings of nefarious activity have plagued the company for some time now as invetigative reporting by the FT had called Wirecard’s operations into question many months ago, something the company went to extreme lengths to deny.

The payments Fintech saw shares in the company collapse to less than €2/share. Last week, Wirecard shares, once a DAX darling, were trading at over €100/share.

Following the bankruptcy announcement, the board of directors of Wirecard stated they could not assure the company would continue as an ongoing concern. The post by the board is replicated below:

The Management Board of Wirecard AG decided today to file an application for the opening of insolvency proceedings on behalf of Wirecard AG at the competent Munich Local Court due to the threat of insolvency and over-indebtedness. It is being examined whether insolvency applications must also be filed for subsidiaries of the Wirecard Group.

Wirecard AG in the normal course of business has drawn upon credit from financial institutions. Wirecard AG has conducted negotiations with the lending institutions, taking into account recent developments. In the absence of an agreement with the lenders, there was a likelihood of termination and expiry of loans with a volume of EUR 800 million on June 30, 2020, and EUR 500 million on July 1, 2020. 

The Management Board has come to the conclusion that a positive going concern forecast cannot be made in the short time available. Thus, the company’s ability to continue as a going concern is not assured.

Wirecard Bank AG is not part of the insolvency proceedings of Wirecard AG. BaFin has already appointed a special representative for Wirecard Bank AG. In future, the release processes for all payments of the bank will be located exclusively within the bank and no longer at Group level.

With this step, Wirecard AG wishes to protect the appropriate interests of all parties involved with the company, including creditors, customers and employees. 

The company will continue to pursue possible chances of reorganization in coordination with the temporary insolvency administrator to be appointed by the insolvency court.

The European Commission has asked the European Securities Market Authority (ESMA) to investigate the Wirecard implosion – as the company operated across all of Europe.

Germany’s security regulator, BaFin, is enduring a period of painful navel-gazing as German Finance Minister, Olaf Scholz said Wirecard’s collapse and apparent regulatory lapse “must be a wake-up call that we need more oversight, more controls.” He described the scandal as “unparalleled in the financial world.”

A chain reaction of events has now taken place with national regulators scrambling to review the impact on their jurisdictions. The UK Financial Conduct Authority (FCA) issued a statement today instituting certain “requirements” on Wirecard activities that slammed the brakes on some transfers. For example, Crypto.com, regulated by the FCA, issued the following statement:

“Following a notice regarding Wirecard UK by the FCA, we have just been requested to stop all activity on our card programs in the UK and Europe. Our customers in those two regions will not be able to top-up their cards or transact later today.”

The company assured customers all funds are safe and later posted via Twitter that all credits had been successfully processed.

Meanwhile, reports filtered through that former COO Jan Marsalek, who reportedly had quickly traveled to the Philippines (apparently his wife is from the Philippines), is now in China, raising even more eyebrows. Not necessarily the actions of an innocent executive. The SCMP reported that Marsalek entered the Philippines on June 23rd only to depart for China the next day. It has been reported there is a warrant out for his arrest in Germany, as well.

The embarrassing financial disaster not only impacts the thousands of businesses that utilized Wirecard’s services around the world but the thousands of shareholders who saw the value of their holdings quickly become nearly worthless. The entire saga leads one to wonder how this apparent Fintech House of Cards survived for so long?

 

 

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