The collapse of Wirecard reveals cracks in the heart of Germany, Inc.

The collapse of Wirecard reveals cracks in the heart of Germany, Inc.

Journalists, complainants and skeptical investors have been questioning Wirecard’s accounting for years, but executives have been able to disprove their claims. Cable card (WCAGY) received coverage from the country’s banking regulator, which pushed back against critical mutual funds and research journalists, but failed to identify any problems in the company.

In the end, the collapse only took seven days. Wirecard admitted last week that about a quarter of its assets – $ 1.9 billion ($ 2.1 billion) in cash – probably never existed. CEO Markus Braun resigned and was quickly arrested on suspicion of artificially inflating the company’s balance sheet and sales through counterfeit transactions. Wirecard filed for insolvency on Thursday.

Brown, who was released on bail, has consistently denied any wrongdoing, suggesting that Wirecard was the victim of a very complex fraud. However, there is a picture of a valuable technology company that was encouraged by the authorities instead of being considered, and of a supervisory board that failed to act as a control on a CEO, many of whom were considered visionaries. Accounting firm EY accelerated the fall of Wirecard by refusing to sign its final results for 2019, after more than a decade of controlling the company.

“You have a lot of evidence of sinners, negligence, all sorts of different culprits,” said Christian Strenger, academic director of the HHL Leipzig Graduate School of Management.

Wirecard is the first member of Frankfurt’s DAX elite to file an insolvency petition. But his outburst follows a series of scandals over the past five years that have embarrassed the German government, regulators and the business community, raising questions about the strength of corporate governance and financial regulation in the world’s fourth-largest economy.

Volkswagen (VLKAF), the world’s largest automaker and champion of German manufacturing, admitted in 2015 that millions of diesel vehicles had been equipped with software to defraud emissions tests. German bank (DB), the country’s largest lender, has paid tens of billions of dollars in fines related to the sale of toxic mortgage assets, interest rate management and a Russian money laundering program.
Two more German corporate snafus have made headlines this week: more than 1,500 employees tested positive for corona at a factory owned by meat processing giant Tönnies Group, forcing local officials to relocate around 100 million people to more than half region. and Bayer (BAYRY) agreed to pay more than $ 10 billion to settle claims that Roundup, a product owned by Monsanto, is causing cancer.

The outbreak at the Tnnnies plant highlighted the poor working and living conditions faced by foreign workers in the industry, and the German government has vowed to ban the use of subcontractors and double the fines for violating the rules for working hours.

The Bayer settlement comes next Investors have expressed deep concern on the acquisition of Monsanto, and asked if the administration had properly understood the legal risks. Bayer shares have lost about a third of their value since the announcement of the Monsanto market in September 2016.
The giant meat packaging company in the heart of Germany's new hotspot coronavirus

Companies operate in different industries, but with the exception of the Tönnies Group, they are listed to the public and are governed by a board responsible for day-to-day operations and overseen by a supervisory board that includes employee representatives. Critics say oversight collapses when boards become too comfortable, which can happen when top executives move to supervisory positions. Investors complain that their interests are often subordinated to other issues, such as political or domestic corporate dynamics.

Strenger said German corporate governance has improved significantly in recent decades, but that the weaknesses of executives and executives are still very common. Additional safeguards would be relatively simple to install, he said, such as changing stock market rules to prevent companies from delaying the financial results, as Wirecard had done.

“We have made good progress … but there is still room for human error or to try to convince people who are convincing. [Wirecard] negotiated in the analytical and investment society as the next UNDERMINE (UNDERMINE), and who wouldn’t want to be in this band? he said, referring to the software giant also mentioned in the DAX.
Former Wirecard CEO Markus Braun was seen by many as a visionary of technology.
The collapse of Wirecard is making waves beyond Germany. A frantic search for lost capital has reached the Philippines, where the central bank has denied that the money had entered the country’s financial system. US Card Publishers MasterCard (BUT) and Visa (B) are reviewing whether they will allow Wirecard to continue processing payments on their networks, according to Bloomberg, and a UK regulator has moved to secures Wirecard customers’ money.

The German government is now paying close attention. Finance Minister Olaf Scholz called the Wirecard scandal “extremely worrying”, saying the country must act quickly to improve oversight. “Critical questions arise about the company’s oversight, especially in terms of accounting and balance sheet control. Auditors and oversight bodies don’t seem to have been effective here,” Scholz said in a statement.

The German Federal Supervisory Authority, or BaFin, is actively investigating whether Wirecard violated the rules against market manipulation. But the regulator is now under scrutiny, with critics arguing that it should have done a better job of overseeing Wirecard’s banking unit, even if it did not have direct oversight of the larger company.

According to information, Mastercard and Visa are reconsidering their relationship with Wirecard after an accounting scandal.

Observers also want to know why BaFin issued a temporary ban in 2019 that prevented investors from borrowing shares of Wirecard to sell them pending price drops and why it filed a criminal complaint against journalists in the Financial Times who published a series. exposed accounting and management irregularities in the company. BaFin chief Felix Hufeld described the scandal earlier this week as a “complete disaster”.

The European Commission has asked the market’s top supervisor to conduct a preliminary investigation into BaFin. Valdis Dombrovskis, an EU official in charge of fiscal policy, told the Financial Times that the bloc should be ready to launch a formal investigation if necessary.

“We need to make it clear what went wrong,” he said.

EY, which is already facing criminal charges from the German shareholders’ union SdK, said on Friday that the collapse of Wirecard was the result of a “complex and complicated fraud, involving many parties around the world in various institutions, with the deliberate purpose of fraud.” ».

“Unfair fraud designed to deceive investors and the public often involves extensive efforts to create a false track record,” the auditor added in a statement. “Professional standards recognize that even the most powerful and extensive control procedures may not reveal an unfair fraud.”

– Chris Liakos, Eoin McSweeney and Stephanie Halasz contributed to the report.

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