Missing billions push Germany’s Wirecard to edge of ruin

Two years ago, Wirecard was being hailed as one of Germany’s great technology stars. 

Under Markus Braun, the payments firm had just achieved a market capitalisation of more than £19billion and rocketed past Deutsche Bank to become the country’s most valuable financial services business. 

But fast-forward, and today Wirecard faces a starkly different reality, with a £1.7billion black hole in the firm’s accounts throwing its future into doubt. Yesterday bosses admitted that a frantic search for the missing money had reached a dead-end in the Philippines, where it was supposed to be held in trust accounts at two Asian banks. 

It prompted them to admit the cash may simply ‘not exist’, sending Wirecard’s market value tumbling to below £2billion. Shares have been in freefall since Thursday, when auditor EY refused to sign off Wirecard’s books after evidence of potential fraud was discovered. 

Braun, chief executive and chief technology officer since 2002, resigned the next day, marking a stunning fall from grace for the 51-year-old. He had been credited for transforming Wirecard from a small operator processing payments for pornography and gambling websites into one of the world’s most successful financial technology firms. 

Munich-based Wirecard, which was founded in 1999 and employs 5,800 staff, makes money from processing tens of billions of pounds in digital payments. 

But it has been battling allegations of fraud for years, with articles published by the Financial Times newspaper claiming its divisions in Singapore and other Asian countries had cooked the books by inflating revenue and profits.

Before its acknowledgement on Thursday that £1.7billion was missing from the balance sheet, Wirecard had previously accused the FT’s journalists of ‘irresponsible’ and ‘false’ reporting and taken legal action against the paper. EY, the firm’s auditor, had also given it a clean bill of health until recently. 

But investor confidence took a hit in April when an independent probe by KPMG was unable to confirm the existence of more than €1bn in revenue from 2016 to 2018. That report was seized on by activist investors such as Britain’s Sir Chris Hohn, who demanded Braun’s removal. 

And last week, EY was unable to verify the money supposedly held by Asian banks – prompting Wirecard’s finances to unravel overnight. 

The revelations have been hailed as a vindication of short sellers, who were questioning the company’s finances as far back as 2016. 

Fraser Perring and Matthew Earl alleged in an anonymous report that Wirecard was linked to money laundering for offshore poker websites aimed at the US – where online gambling was still illegal at the time. 

But their claims were dismissed as ‘baseless’ by Wirecard and the pair soon found themselves accused of share price manipulation by Frankfurt’s Federal Financial Supervisory Authority, better known as Bafin. The German regulator launched similar action against FT journalists after their reports of suspected accounting fraud at the company. 

Yet it is Wirecard that is being investigated for alleged market manipulation now. The firm’s Munich headquarters was raided by Bafin officials on June 5 and its board has been named in legal proceedings. 

Earl, who runs the hedge fund Shadowfall and is known in the City as the ‘Dark Destroyer’, tweeted yesterday: ‘If Bafin had put 10 per cent of the time it spent investigating myself and subsequently others into investigating Wirecard, this would’ve been over long ago.’ 

And Crispin Odey, the British hedge fund manager who took short positions against Wirecard, said: ‘The Germans institutionally were just determined to rally around and just not look at the facts.’ 

David Savage, a partner at Stewarts Law specialising in financial crime, said: ‘It is of course easy to just blame the accountants, but EY is certainly going to come in for a lot of scrutiny about why this wasn’t picked up sooner.’ 

The company has withdrawn its results for 2019 and says an impact on previous years cannot be excluded. ‘Wirecard is assessing options for a sustainable financing strategy for the company,’ it said yesterday.