Wirecard suffered one of the worst stock slumps in the history of Germany’s benchmark index after revealing that about 1.9 billion euros ($2.1 billion) in cash has gone missing, spooking investors who have endured years of allegations of wrongdoing at the payments company.
The revelations cast doubt on Wirecard’s leadership and survival. The company warned loans up to 2 billion euros could be terminated if its audited annual report, delayed for the fourth time, was not published by June 19.
Ernst & Young was unable to confirm the location of the cash in certain trust accounts, and there was evidence that “spurious balance confirmations” had been provided, Wirecard said in a statement on Thursday. That’s about a quarter of the consolidated balance sheet total, Wirecard said.
“We are stunned,” said Ingo Speich, a fund manager at Deka Investments, a top 10 shareholder at the firm. “A new start in terms of personnel is more urgent than ever.”
The escalating crisis also calls into doubt the future of Chief Executive Officer Markus Braun (pictured), who is the company’s biggest shareholder. Braun has been at the helm since 2002, building the company from a startup into a payment provider whose technology facilitates transactions around the world.
Braun painted the company as a potential victim in a separate statement. The CEO has been resisting calls to resign and aggressively defending the company against accusations of accounting fraud, led by a series of articles in the Financial Times.
“It is currently unclear whether fraudulent transactions to the detriment of Wirecard AG have occurred,” said Braun, adding that the company will file a complaint against unnamed persons.
The stock dropped as much as 67% to 35.85 euros in Frankfurt on Thursday, the biggest fall on record and the largest for a member of Germany’s prestigious 30-company DAX stock index. Wirecard’s bonds also suffered a record plunge.
Loan issue
Wirecard warned loans up to 2 billion euros could be terminated if its audited annual report was not published by June 19. Analysts at Morgan Stanley estimated that Wirecard has available cash of around 220 million euros, if it cannot locate the missing $2.1 billion.
“While we would expect Wirecard to seek covenant waivers, if the banks call 2 billion-euros of debt and that is mostly drawn, then we expect investor focus to turn to the balance sheet and liquidity,” said analysts at Morgan Stanley in a note on Thursday.
Wolfgang Donie, analyst at NordLB, warned that the “overall situation at Wirecard can only be described as insupportable and the scandal is now becoming a crisis that is threatening the existence of the company.”
German financial markets regulator BaFin said it is examining Wirecard’s disclosure on Thursday as part of its investigation into whether the company violated rules against market manipulation, according to a spokeswoman.
In September 2018, Wirecard reached a market valuation of 24.6 billion euros, replacing Commerzbank AG in the DAX alongside titans such as Volkswagen AG, Siemens AG, and Deutsche Bank AG. Following Thursday’s collapse, the company is valued at around 6.7 billion euros.
“Wirecard’s retreat could be terminal,” said Neil Campling, an analyst at Mirabaud Securities.
Asian banks
EY told Wirecard that their results will require additional audits after two unnamed Asian banks that have been managing the company’s escrow were unable to find accounts with about 1.9 billion euros in funds, Wirecard said in an additional statement. Those funds had been set aside for risk management, the company said.
Wirecard said last month that the latest delay in publishing results was due to Ernst & Young needing more time to finish its review, and that the auditor hadn’t found anything material within the scope of its work. Wirecard had previously postponed the results while it was working with KPMG on a probe into allegations about accounting irregularities.
Braun has aggressively fought against allegations that the company’s financials have been mismanaged. Braun has also resisted calls from activist investors TCI Fund Management Ltd. to step down, promising to regain investor confidence and improve compliance and control.
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