The company that bequeathed to be seen as the future of German finance has become a symbol of national shame.
After vowing to shake up the world of payment services, Wirecard has seen its stock plummet and its CEO stepped down after € 1.9bn, roughly a quarter of its balance sheet, evaporated. That was a bombshell for the stablishment of Germany defended Wirecard critical investors who had long warned about accounting irregularities.
"We Germans are not as prone to euphoria as we are in the United States, but when Wirecard entered the DAX, there was a feeling that we can also produce successful tech giants," said Hans-Peter Burghof, professor of finance at the University of Hohenheim in Stuttgart. "What we are seeing now is just horrible."
"It is embarrassing for Germany," he said. "Banks, auditors and regulators were not asking the right questions."
Despite all its engineering skills, Germany has lagged behind in producing tech giants like Facebook, with the exception of software company SAP. After a series of acquisitions, Wirecard seemed to change that narrative: Based in a quiet suburb of Munich, a city known as the home of BMW and Siemens, the startup replaced in 2018 in the DAX, Germany's benchmark index of companies that They are listed on the stock market by none other than 148-year-old Commerzbank.
Wirecard's origins focused on online payment services for gambling, gambling and pornography. Recent clients include Germany's most successful football club, Bayern Munich, French mobile phone operator Orange, and Swedish furniture giant Ikea. Investors, analysts and regulators were prepared to overlook Wirecard's opacity as it continued to grow, even as concerns about its accounts were highlighted last year by a series of media reports, originally led by the Financial Times.
The shares fell and investors made so many bets that they would fall even further than German financial markets regulator BaFin stepped in to temporarily ban short positions against Wirecard, a step it had never taken for an individual company.
"Our focus was to protect confidence in the market as a whole, not in a single company," said a BaFin spokeswoman in response to Bloomberg's questions. BaFin directly supervises only banks and insurers.
Others disagree. Investor losses would have been "a fraction of what they are" if BaFin had taken a different approach, said Carson Block, the famous short trader. He says his firm Muddy Waters made a bet against Wirecard in 2016, but did not renew it.
Investors resist
The stock has fallen 86% since joining the DAX. Creditors' faith that they will get their money back from Wirecard has also evaporated: By Friday its bonds offered yields similar to those of bankrupt giant Hertz Global Holdings.
The collapse of the shares risks further undermining Germans' willingness to invest in stocks rather than savings accounts, which currently offer negligible interest.
The German regulator also investigated possible market manipulation by short traders and journalists and whether Wirecard failed to meet its disclosure obligations. He asked Munich prosecutors to investigate both issues.
A Wirecard spokeswoman did not respond to an email seeking comment for this news. A spokesman for the finance ministry declined to comment on the case, simply saying that the government seeks to safeguard "a healthy and competitive financial industry" in Germany.
When it came to Wirecard, authorities "limited themselves to the least charge," said Armin Stracke, a former Wirecard operator and investor who filed a complaint with BaFin earlier this year alleging that the company had misled investors.
BaFin is still investigating whether Wirecard's alleged accounting problems constituted market manipulation. Unlike other investigations, the regulator depends on the evaluation of other authorities in this matter, the spokeswoman said.
"BaFin started its investigations from the beginning, but unfortunately that could not prevent the surprising losses for investors," said Florian Toncar, a German opposition deputy. "It would be great to see BaFin use the tools at its disposal to quickly bring clarity to investors."
Some German MPs want to expand BaFin's powers to prevent future financial explosions. For Burghof, the finance professor, it's not so much about more power as it is about exercising greater discretion within the regulator's mandate.
Help from banks
Wirecard's troubles mark yet another low point for "Germany SA" after the emissions cheating scandal that engulfed its automakers and the billions of dollars Deutsche Bank AG paid in fines and legal settlements for misconduct following a aggressive expansion as a global investment bank.
Wirecard's rise would probably not have been possible without its banks. Deutsche Bank, the largest in Germany, even gave credit to former CEO Markus Braun that was guaranteed with Wirecard shares. A Deutsche Bank spokesman declined to comment on individual clients.
"There are many people in charge," said Tim Albrecht, fund manager at Deutsche Bank's DWS asset management unit, in an interview with Frankfurter Allgemeine Zeitung. "That starts with the institutional flaws in Wirecard and extends to the banks that sent positive signals with their gullible analyst reports."
Now, Germany's banks and regulators are putting Wirecard under the microscope. As BaFin continues to investigate, at least 15 commercial lenders, including Commerzbank and Dutch ABN Amro, are negotiating on next steps, Bloomberg reported on Friday.
Wirecard, meanwhile, said it is in "constructive talks" with creditor banks.