FRANKFURT/MANILA (Reuters) – Wirecard said on Monday that 1.9 billion euros ($2.1 billion) it had booked in its accounts likely never existed, creating a black hole that threatens to engulf the payments firm and tarnish the reputation of Germany’s financial regulator.
The one-time investor darling is holding emergency talks with banks and looking at the sale or closure of parts of its business to avert a looming cash crunch.
Felix Hufeld, the head of Germany’s financial watchdog, described the crisis, which has seen around 11 billion euros wiped off Wirecard’s market value, as a “total disaster”.
“It is a scandal that something like this could happen,” Hufeld said.
Bafin’s record has come under fire in Germany as Wirecard’s share price has imploded, hitting retail investors and some large money managers.
The regulator had focused on probing so-called short-sellers and journalists behind reports questioning Wirecard’s accounts, prompting criticism over its inaction.
German lawmaker Fabio De Masi said that Bafin had failed in its duty over Wirecard, whose credit rating was withdrawn by agency Moody’s on Monday over “accounting irregularities”.
Wirecard, which processes payments for companies including Visa and Mastercard, has appointed investment bank Houlihan Lokey to help it survive.
In Monday’s announcement Wirecard also withdrew its financial statements for 2019 and said it was examining cost cuts to address the crisis at the company, which has long been held up as a rare technology success story in Germany.
“The Management Board of Wirecard assesses … that there is a prevailing likelihood that the bank trust account balances in the amount of 1.9 billion EUR do not exist,” it said.
Wirecard said last week that auditor EY had refused to sign off its 2019 accounts as it was unable to confirm the existence of 1.9 billion euros in cash balances in trust accounts, about a quarter of its balance sheet.
EY had regularly approved Wirecard’s accounts in recent years, and its refusal to sign off for 2019 confirmed failings found in an external investigation by KPMG in April, which in turn followed investigative reports by the Financial Times.
Wirecard’s latest announcement follows the exit on Friday of former chief executive Markus Braun, who was replaced by James Freis, an ex-compliance officer at Germany’s stock exchange.
The company has been under scrutiny since a whistleblower alleged that it owed its success in part to a web of sham transactions. This culminated in a search for the missing cash, which hit a dead end in the Philippines.
The Philippine central bank said none of the money appeared to have entered the country, after Bank of the Philippine Islands (BPI) and BDO Unibank said documents purporting to show Wirecard had deposited funds with them were false.
BPI Chief Executive Cezar Consing said a certificate purporting to be for a Wirecard deposit was “spurious” and reiterated that no cash from the company had entered the bank.
“It was very clear when we were shown the so-called certificate that it was spurious,” BPI’s Consing told Reuters, adding that he was informed about it on June 15 when EY asked whether the certificates were real.
Munich-based Wirecard joined Germany’s blue-chip DAX index in 2018. Analysts at Mirabaud said its DAX membership was now completely inappropriate and should be reviewed.
Wirecard, which operates both as an issuer of real and ‘virtual’ payment cards and as an acquirer on behalf of merchants, had marketed itself as a universal payments platform positioned to profit from the growth in digital payments.
Reporting by Kanishka Singh and Bhargav Acharya in Bengaluru; Additional reporting by Douglas Busvine in Berlin; Writing by John O’Donnell; Editing by Anil D’Silva, Christopher Cushing and Alexander Smith