Wirecard's Phantom $2 Billion Scandal



Once proclaimed as the darling of the growing financial technology sector, Wirecard AG, the German payment and financial service provider from the city of Aschheim, has fallen sharply from grace after a series of reports done by its EY auditor uncovered accounting irregularities in its Asian operations. Wirecard’s management claimed that the bank’s trust account balance of €1.9 billion or roughly Rp. 30 trillion had gone missing from the company’s balance sheet. Markus Braun, who was also an ex-consultant in KPMG, helped build Wirecard into one of Germany’s biggest companies. He was able to build upon a company which offers its customers electronic payment transaction services and risk management, along with the issuing and processing of physical and virtual cards. After an audit of the company’s balance sheet revealed billions of discrepancies, Braun resigned as the CEO of Wirecard. The motive behind the incident was said to be due to Braun’s desire to increase company falling stock price and as a method to bounce back. As the ex-CEO of Wirecard, he has been suspected of inflating the company's balance sheet and revenues, which has led him to turn himself in to the law enforcers. Later on, it was revealed that Braun was immediately released after setting his bail at €5 million, with an additional rule where he must report to police officials weekly.


Following the breakout of the incident, Wirecard shares plunged for an enormous sum. On Thursday (6/18), Wirecard’s share price cratered immediately after the news and was down for almost 62% by the market close. Its share price figures dropped to 39.90 euros which could previously be purchased over 100 euros per share. According to Adithya Metuku, an analyst for Bank of America Corp., Wirecard AG’s shares, which were trading at just over 100 euros a week ago, might frankly be worth a mere single euro per share after said incident. “Recent news flow suggests that customers may have started to leave Wirecard and lenders may be weighing closure of credit lines,” analyst Adithya Metuku said in a note to clients on Wednesday (6/24). Several analysts have downgraded the stock since the shares collapsed in the last week amid an accounting scandal. “Clarity on the underlying business is unlikely to arise for some time", he added. On the same day, the stock plummeted for 12% to 15.1 euros.


The aftermath of the plummeting Wirecard share prices has caused several businesses to keep their distance from the German financial service company. Customers are urging for the CEO of Wirecard to reassure the business partners of Wirecard, which has licenses with Mastercard, Visa and JCB International, that when the company happens to fail in finding its missing cash, the card companies may have the ability to revoke the licenses. A Singaporean ride-hailing company, Grab Holdings, Inc. is one of the businesses that remains distant from Wirecard AG. The company stated that they had not begun integration work on a partnership with the firm. Furthermore, a French Telecom Carrier, Orange SA, has to have Wirecard replaced with a new payment partner in their Orange Bank Unit although the partnership has been invoked since 2013. All in all, Wirecard is currently filled with criticism as the firm is entangled within their own fiasco. The aftereffect of this whole incident has caused this case to be one of the worst scandals in the accounting world. Subsequently, the Economic Minister, Peter Altamaier, demanded a thorough investigation on this case, and boldly claims, “It’s really important to me that such a case never happens again for the sake of confidence in the German banking system.”


Sources:

FT

CNBC

Bloomberg


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