Breakingviews - Wirecard scandal turns into an existential crisis

The headquarters of Wirecard AG, an independent provider of outsourcing and white label solutions for electronic payment transactions is seen in Aschheim near Munich, Germany April 25, 2019.

LONDON (Reuters Breakingviews) - Markus Braun’s day of reckoning turned out to be worse than seemed possible. The Wirecard chief executive’s company lost more than half its market worth on Thursday, sending its value down to 5.4 billion euros, after EY found indications that 1.9 billion euros of cash may be “spurious”. Its accounting scandal is now an existential crisis. Braun’s enablers, including regulators, lenders and auditors, have a lot of explaining to do.

The Bavaria-based payments company has for 18 months denied accusations of financial impropriety made by the Financial Times. Thursday’s news involves cash that’s consolidated on Wirecard’s balance sheet but held in third-party trust accounts. There are signs that third parties provided “spurious balance confirmations” to EY, with the aim of deceiving the accountants for Wirecard’s benefit, the company said. As a result, Wirecard’s audited 2019 financial statements were not released as planned. If they’re not published by Friday, lenders can terminate 2 billion euros’ worth of loans.

Braun said that all parties are trying to clarify the situation as quickly as possible. But the damage may already be done. Wirecard’s bonds due in 2024 fell by 23 cents to roughly 58 cents on the euro, Reuters reported citing Tradeweb. It will struggle to borrow in the future if current lenders walk. More importantly, shoppers, merchants and major corporate clients will be loath to work with a company that is unable to prove that one-quarter of its balance sheet actually exists.

The scandal also raises questions about the role played by Wirecard’s regulators and business partners. German financial watchdog BaFin last year banned short selling in its shares, and filed a criminal complaint against FT journalists who had written critical pieces. Given the doubts raised by EY on Thursday, BaFin’s time might have been better spent investigating Wirecard instead. The auditor itself is in an uncomfortable position, having signed off statements for past financial years. Finally, there are Wirecard’s lenders and investors, including SoftBank Group. The Japanese technology conglomerate poured 900 million euros into a convertible bond last year, only to offload its exposure to other investors shortly afterwards.

Braun will rightly shoulder the bulk of investors’ ire after Thursday’s collapse, but there’s plenty of blame to go around.


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