WireCard CEO In A World Of Pain As Banks Force Margin Call On €150MM Stock-Pledged Loan

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by Tyler Durden
Sunday, Jun 21, 2020 - 04:15 PM

He may have avoided prison for the time being, but the financial pain for Markus Braun, CEO of the biggest corporate fraud in German history is just starting.

According to Bloomberg sources, Braun is facing a massive margin call as Deutsche Bank has issued a margin call on a €150MM loan pledged by shares that have lost 72% of their value following news that billions in company cash have gone missing.  Braun, who holds 7% of Wirecard’s shares and is the company’s biggest shareholder, did what so many CEOs have done, and funded a €150 million margin loan that was secured by the value of the underlying stock. However, last week's plunge has triggering a margin call liquidation of these shares which no longer cover the full value of the loan.

In 2017, Braun - who has invested tens of millions of euros of his own funds into the firm and owned 8.7 million shares of Wirecard as of June 19 - secured the loan from Deutsche Bank (there's that name again) by pledging 4.2 million shares, or just under half of his personal stake. When the stock was trading above €100/share the overcollaterialization cushin was generous, giving the loan an LTV of well below 50%. However, with the stock now trading at €25, there is a €50MM shortfall in the loan and DB is rushing to collect on whatever it can.

in other words, it would take as much as 6 million shares of Braun's WDI holdings to satisfy the margin loans leaving him with about 2.7 million shares which at a price of €25 means a little over €50 million, which will evaporate in no time on lawyer retainers as the CEO prepares for the legal onslaught facing him (assuming of course the stock retains any value if and when WireCard files for bankruptcy as now appears likely).

The good news for Deutsche Bank is that for once it is not facing a direct loss on this massive fraud because as Bloomberg notes that the bank has since offloaded the risk tied to the position. The bad news is that Deutsche Bank is part of the 15 bank syndicate behind Wirecard's revolver.

Those banks now have the legal right to terminate the loan known as revolving credit facility because Wirecard breached conditions known as covenants when it failed to publish the annual report on Friday. The involved banks are currently trying to extract other concessions from Wirecard such as heightened transparency to avoid a default that would hit them too, Bloomberg has reported.

Ultimately, depending on the extent of the fraud, the banks may suffer substantial impairment, especially if Wirecard files for bankruptcy in the next few days, something which its Friday hiring of Houlihan Lokey suggests is imminent.

As noted above, Wirecard's CEO is not alone in using his shares as margin against a loan: take the example of Tesla, whose directors and executives - such as Elon Musk - have pledged a whopping 10% of the outstanding stock or some 5 million shares as collateral against margin loans, a number which has increased by 36% over the past year.