Produced by: Sina Technology
Compiled by: Li Ming
Wirecard said that the fund of 1.9 billion euros may not exist at all, which reminds us Ruixing Coffee.
According to foreign media reports, German payment giant Wirecard said on Monday that the 1.9 billion euros (about 2.1 billion dollars) missing from its account may not exist at all. At present, the company is considering selling or closing some businesses to avoid capital shortage.
As a former darling of the German stock market, Wirecard Visa and MasterCard (Mastercard) and other companies handle payment business. In recent days, the company's market value has lost billions of euros.
$2.1 billion disappeared
Wirecard said in a statement last Thursday that Ernst&Young, the external auditor, was "unable to verify" the 1.9 billion euros (2.1 billion dollars) of cash that the company should have deposited in Asian banks. This fund accounts for about 1/4 of Wirecard's total balance sheet. It is reported that there are indications that Wirecard trustee has made false balance confirmation in order to deceive auditors.
In recent years, Ernst&Young regularly approved Wirecard's accounts, but refused to sign the 2019 accounts, which confirmed a survey result published by KPMG in April. At that time, KPMG questioned the authenticity of Wirecard's profits.
The loss of 1.9 billion euros led to the postponement of Wirecard's 2019 annual report. So far, this is the fourth "ticket skipping". More worrisome, Wirecard also said that due to the inability to provide annual reports, the company may be required to prepay up to 2 billion euros of loans.
CEO resignation; Credit rating reduced to "junk"
As a result, Markus Braun, the CEO of Wirecard who has been at the helm for 18 years, left his post on Friday and was replaced by James Freis, the former compliance officer of the German Stock Exchange.
Braun hinted that Wirecard itself may be the victim of fraud when leaving the company. In a video statement released before his resignation, he said: "It cannot be ruled out that Wirecard has become the victim of a large-scale fraud case."
Braun also said that he chose to leave because he did not want to burden Wirecard. He said: "The confidence in the capital market of the company I have managed for 18 years has been seriously shaken. In my decision, I respect the fact that the CEO is responsible for all business transactions."
At the same time, Moody's, a rating agency, also significantly lowered Wirecard's credit rating to "junk" level. As for Wirecard, which is deeply involved in the cash audit scandal, this is undoubtedly worse.
Moody's also said that it may further downgrade the company's rating in the future. Moody's pointed out that repeated delays in the release of annual performance reports may lead to default events, leading to Wirecard's urgent need for refinancing.
This fund doesn't exist at all?
Today, Wirecard issued a statement saying: "The company's management committee is evaluating the possibility that the 1.9 billion euro cash balance marked by Ernst&Young's auditors as missing does not exist at all."
In the statement, Wirecard also withdrew its financial statements for 2019 and said that it was considering cutting costs to deal with the crisis.
At present, Wirecard is busy supporting its financial situation and studying sustainable financing strategies with Houlihan Lokey, an investment bank. To avoid a shortage of funds, Wirecard is considering selling or closing some businesses.
Jasper Lawler, the research director of London Capital Group, said that if the fund could not be recovered quickly or a clear explanation could not be given in a short time, Wirecard might never turn over.
Two major banks in the Philippines "don't take the blame"
Since a whistleblower claimed that Wirecard's success was partly attributed to the false trading network, the company has been closely watched and reached its peak when searching for missing cash, then fell into a dead end in the Philippines.
Focusing on the disappearance of the 1.9 billion euros in the account, the focus is mainly on two Philippine banks. Wirecard said last week that two Asian banks could not find the accounts for these cash deposits, but did not disclose the identities of the two banks.
The Bank of the Philippines (BPI) and BDO Unibank both said that Wirecard was not their customer and they had not seen the fund. The two banks said that the documents that Wirecard deposited funds in them were false, and Wirecard was not their customer.
BPI told the media that it had suspended an assistant manager because his signature appeared on one of the documents. BDO Unibank said to the central bank that one of its marketing staff seemed to have forged a bank certificate.
At the same time, the Central Bank of the Philippines is also conducting relevant investigations. Central bank of the Philippines said that no such funds seemed to enter country.
Creditors demand greater transparency
As a result, Wirecard may be required to prepay up to 2 billion euros of loans. According to the latest news, Wirecard's loan bank asked the company to increase transparency in exchange for an extension.
Insiders, at least 15 commercial banks, including Commerzbank and ABN AMRO, are studying this matter, and most banks are inclined to postpone repayment. Wirecard may announce to accept external supervision and improve transparency as early as next week. In exchange, the bank may not require Wirecard to prepay the loan.
People familiar with the matter also said that lenders are also considering hiring external help to seek solutions to the risk of potential large-scale default.
"The first fire" for new officials
It is reported today that Wirecard Interim CEO Frith is preparing to become a new department called "Integrity, Law and Compliance". At present, he is facing a critical week to convince investors that Wirecard can tide over the difficulties.
Obviously, Frith has a lot to do, but he also has a lot of relevant experience. Analysts said Frith needed to reassure investors to prevent the stock price from plummeting. A spokesman of Wirecard said on Friday that long-term investors had reduced their shares in Wirecard, while DWS, the asset management company of Deutsche Bank, said it would sue Wirecard.
In addition, Wirecard also faces multiple investigations by local prosecutors and BaFin (Federal Financial Supervisory Authority), the German financial regulator. One of Frith's tasks will be to explain to the regulators exactly what happened to the lost cash and how it will affect Wirecard's balance sheet.
In addition, Wirecard must assure customers that the business of its banking department is normal. Wirecard started to provide a digital wallet called "Boon Planet" last year. This app is similar to Paypal. It is unclear how much money customers have deposited. Wirecard reassured customers on Saturday that their deposits were protected by the German National Guarantee Fund.
Replica of "Ruixing Coffee"
Wirecard said that the fund of 1.9 billion euros may not exist at all, which reminds us of Ruixing Coffee. In April this year, Ruixing Coffee announced the establishment of a special committee to conduct an internal investigation on the falsification of transactions by Liu Jian, the company's COO, and several other employees.
Ruixing Coffee said that the information confirmed at the initial stage of the internal investigation showed that from the second quarter of 2019 to the fourth quarter of 2019, the total sales related to false transactions was about 2.2 billion yuan. During this period, some costs and expenses were also greatly exaggerated due to false transactions.
As the auditor of Ruixing Coffee, Ernst&Young responded that in the process of auditing the 2019 annual financial report of Ruixing Coffee, it was found that some managers of Ruixing Coffee falsely increased the income, costs and expenses of the company during the relevant period through false transactions.
Myth Destruction
Wirecard, founded in 1999 and headquartered in Munich, Germany, was once considered one of the most promising technology companies in Europe. It processes payments for consumers and businesses, and provides data analysis services. The company has nearly 6000 employees in 26 countries around the world, and its revenue in 2018 exceeded 2 billion euros (about 2.2 billion dollars), more than four times that of 2013.
Undoubtedly, Wirecard is regarded as the success of Fintech in Germany and was included in the German blue chip DAX index in 2018. Mirabaud analysts of securities company believe that the DAX membership of Wirecard is totally inappropriate now and should be reassessed.
At the same time, some people began to worry that the growing scandal would damage Germany's reputation. Fabio De Masi, a member of the German Bundestag, said that this was the dereliction of duty of BaFin, the country's financial regulator.
The future prospects are worrying
Analysts said that the incident made the future development of Wirecard into doubt. As one of Germany's top technology companies, Wirecard said on Monday that it had withdrawn its preliminary performance forecast for 2019 and the first quarter of 2020, as well as its profit forecast for this year.
Wirecard also said: "We can't rule out the potential impact on the annual financial accounts of previous years." Wirecard said that the company is having a "constructive dialogue" with lenders on continuing to obtain credit. At the same time, it also cooperated with Houlihan Lokey, an investment bank, to "evaluate the options of sustainable financing strategy".
In addition, Wirecard also considers restructuring, selling or terminating some businesses to potentially reduce costs. As a result, Wirecard's share price fell by about 45% in early trading on Monday.
