German Police Preparing To Arrest Former Wirecard Execs As Evidence Of Massive Fraud Mounts

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by Tyler Durden
Monday, Jun 22, 2020 - 11:12 AM

Update (1100ET): As evidence of an extraodinarily brazen accounting fraud at Wirecard piles up, German prosecutors are reportedly planning to file criminal charges against now-former Wirecard CEO Markus Braun and COO Jan Marsalek.


The news comes after the collapse in Wirecard shares has rendered Braun a virtual pauper. Meanwhile, whatever customers the company still has are quickly jumping ship.

If Braun has any assets left, we wouldn't be surprised to see him plot a Carlos Ghosn-style 'Great Escape'.

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Update (0840ET): Is this 'game over' for Wirecard? It very well might be...

As ex-CEO Markus Braun's Wirecard stake is officially dragged underwater as its value sinks below the balance of a loan backed by the shares, threatening to set off a 'doom loop' margin call that could officially take the once-highflying DAX components shares to zero, it appears many of the company's biggest lenders are running for the hills, cutting the company off from much-needed liquidity and forcing it to dramatically reassess its options now that bankruptcy looks virtually inevitable.

According to Bloomberg, state-run Bank of China is looking at turning off the credit taps and writing down its €80M ($90M) loan to Wirecard.

Bank of China Ltd. is discussing ending a credit facility to Germany’s Wirecard AG, a move that would complicate the beleaguered company’s fight for survival after it was engulfed by a multi-billion-dollar accounting scandal.

China’s fourth-largest lender may write off most of the 80 million euros ($90 million) it’s owed and not extend the credit line, the people said, asking not to be identified as the discussions are private. Bank of China -- one of a group of at least 15 commercial banks behind $2 billion in financing to Wirecard -- plans to engage an external legal team to look into how it can minimize losses, they said.

Bank of China is part of a revolving credit facility of about 1.75 billion euros, Bloomberg reported earlier. Under the current lending agreement, banks can call in loans before the maturity or take legal action if terms are breached, or if conditions attached to the facility aren’t met.

Of course, once one bank moves to cut ties, the rest of the corporate banking cabal will see the blood in the water and turn off the taps, effectively forcing a 'liquidity crisis' that will probably force the company into bankruptcy.

One Twitter user responded to the news by asking: What does the BoC know that other banks don't?

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Germany's once-prized fintech giant Wirecard is teetering on the brink of bankruptcy now that both the disgraced company and its "Big Four" auditors have finally acknowledged that €1.9 billion euros ($2.1 billion) of cash missing from its reserves will probably never be found.

The acknowledgement, confirmed Monday by a flurry of press reports, caused the price of Wirecard shares to halve once again, falling by 45% at its peak, before bouncing slightly.

Per CNBC, the search for the missing cash hit a dead-end after two Asian banks, the Philippines-based BDO and BPI, both denied having Wirecard as a client. Furthermore, the Philippines’ central bank said Sunday that the money hadn’t even entered the country’s financial system, exposing yet another one of Wirecard's probably-improvised lies as just that.

"The initial report is that no money entered the Philippines," Bangko Sentral ng Pilipinas Governor Benjamin Diokno said Sunday, adding the names of BDO and BPI were used “in an attempt to cover the perpetrators’ track." Both banks claimed rogue employees falsified documents to indicate the existence of the funds, suggesting that whistleblowers' claims that the money never existed are probably true.

Wirecard CEO Markus Braun quit on Friday one day after the company said EY had refused to sign off on WC's 2019 accounts. Before leaving, the CEO claimed the company had been the victim of "considerable fraud" (whistleblowers, on the other hand, have described a culture where accounting fraud like this was encouraged to pacify regulators and overhype investors).

Braun owns something like 9 million Wirecard shares, and has a $150 million margin loan outstanding backed by his shares. Our calculations show he likely no longer has enough equity to cover the loan's balance via liquidation, which means the collapse of Wirecard into bankruptcy could take its now-former CEO down with it, a fitting end for an executive who apparently "duped" Germany's top financial regulators into acting like his personal attack dogs, while the company aggressively pursued journalists and would-be whistleblowers alike.

Here's more on that from a post we published last night:

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.

At one point, BaFin, the German regulator, even barred short-selling in Wirecard's shares, an extremely unusual action that was widely criticized at the time, and only looks worse in retrospect.




As expected, it has been rough going for Wirecard shares since they gapped lower at the open in Frankfurt.

With no outright buyers waiting in the wings, an analyst from Citi declared that this is the end of the road for Wirecard, thought not exactly in those words. "The KPMG/E&Y audits and this morning’s announcement lead to such uncertainty over the financials that we are unable to quantify the true profile of the business with conviction. If the company can navigate through the current turmoil, we believe it will still be hard to restore confidence in WDI itself," Citi analyst Robert Lamb said.

We suspect many of the shorts betting against $WDI are hanging on to their positions as they wait for the company's shares to go all the way to zero, resulting in unmitigated victory.

For whatever it's worth, Wirecard has brought on investment bank Houlihan Lokey to explore "options for a sustainable financing strategy".