A short-seller heaven? By Ulvi Haqverdi
Your commercial awareness dose!
German payment processor and financial services provider Wirecard is likely to be named as one of the most discussed and criticised companies in the second quarter of 2020. In the international sphere, the company’s value and operation raised dramatically in the last years. Wirecard owes its success particularly to its CEO and Founder, Markus Braun, who injected capital and joined the company in 2002 during the dot-com bubble.
Within its short history, Wirecard achieved to expand its businesses to important financial hubs such as Dubai, Singapore, Beijing, and promising emerging economies, such as India, Turkey, Brazil and recorded significant benefits. The main businesses of the company lie on supplying global electronic payment and risk management services in specific areas, such as mobile payments, e-commerce, digitisation and financial technology. The company’s transaction volume reached the record level of US$125 billion through its cooperation with 280,000 companies, including giants such as Allianz, KLM, Qatar Airways, Transport for London and others in 2018. It started its collaboration with Alipay in 2015 to offer familiar payment methods for Chinese tourists visiting Europe.
Prior to the scandal, Wirecard was valued more than German Giant Deutsche Bank and was regarded as “European Fintech champion” at one point. It profited significantly from the shift away from physical cash, such as its competitor Paypal. However, Wirecard’s story is not just black and white – its greyer areas started to come in sight in the last years. A couple of articles querying the accuracy of the firm’s financial statements had been published since 2015. The number of such articles skyrocketed in the last 18 months, while a series of articles in Financial Times particularly had a crucial impact on the behaviour of short-sellers and whistle-blowers.
Nevertheless, no attention was paid to this matter by German market regulator, Bafin and even shorting the firm’s stock was banned by this authority for a specified period. Additionally, a significant amount of investors and large financial institutions, such as Deutsche Bank, confirmed their belief in the company’s ethical operation. In October 2019, the Financial Times presented a couple of documents, having alleged that the profits of Wirecard’s Dubai and Dublin businesses were fraudulently inflated and, customers presented to the auditor, Ernest Young, were not real. It is believed that under the investors’ pressure, Big Four Accountancy Firm KPMG conducted another audit and concluded that the company’s accounting practices were totally accurate.
At the end of April 2020, EY announced that nearly $2 billion allegedly to be held at two banks in the Philippines on behalf of Wirecard was missing. It was subsequently found that the stated amount had never existed and was potentially inflated intentionally in order to boost investor confidence. On June 5th 2020, Munich police started a criminal investigation. Wirecard CEO Braun resigned on June 19th and was arrested and bailed subsequently under the charges of false accounting and market manipulation.
Having lost the investor’s confidence, the company’s stock has plummeted by 80%, and its value dropped from $12 billion to $2billion in a matter of days. On 25th June Wirecard officially declared its bankruptcy and the operation of its branch in the UK – Wirecard Card solutions also was frozen by the UK Financial Conduct Authority a day after. Despite its ongoing and constant growth success, such a sudden scandal shocked the investment world and how the gap of such a significant payment processor will be filled in the global market is debatable.
Written by Ulvi Hagverdi and edited by Stephanos Christodoulou.
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