Global review: Wirecard in fire sale after billions that do not exist go missing
The name Wirecard appears in lots of place in Singapore which is pushing to become a cashless society. When Singaporeans pay with their contactless credit card and the retailer gives you a slip to confirm your purchase, oftentimes the company’s name is printed at the bottom of the slip.
Users of Fitbit and Garmin can also use their watches for contactless payments because of partnerships with Wirecard.
In addition, for car owners who eschew the stored value in-vehicle unit or IU card, there is MotorPay, a joint Land Transport Authority-DBS Bank partnership with Wirecard. Whenever a motorist incurs an ERP fee, it is billed to their credit card.
At the back end, Wirecard also provides a complete system management facility that includes user management, reporting of ERP transactions, risk management, settlement and reconciliation services, and payment processing solutions. Meanwhile, Wirecard manages the front-end service of MotorPay’s website and its user registration services, which allow motorists to perform specific functions online, such as registering for a MotorPay account and accessing ERP transaction histories.
In a word, Wirecard sells itself as the alternative payment solution when cash becomes unfashionable but that future may now be in jeopardy.
On June 18, Wirecard’s auditor EY announced that it could not trace some EUR1.9 billion ($3 billion) which were kept in escrow accounts. “The respective subsidiaries of Wirecard AG have paid substantial security deposits totalling EUR1.9 billion into these escrow accounts in order to guarantee risk management for participating merchants. The banks managing the escrow accounts are two Asian banks,” said Wirecard. This is serious because Wirecard’s total shareholders’ equity as at end-2018 stood at EUR1.92 billion which were the company’s last audited figures. As at Sept 30, 2019, total shareholders’ equity was reported at EUR2.31 billion.
The two banks turned out to be Bank of the Philippine Islands or BPI, which DBS once owned a significant stake, and BDO Unibank.
“Previously issued confirmations by the banks were no longer recognised by the auditor. All parties involved are endeavouring to clarify the matter as quickly as possible. It is currently unclear whether fraudulent transactions to the detriment of Wirecard AG have occurred. Wirecard AG will file a complaint against unknown persons,” said ex- CEO Markus Braun on June 18, before resigning a day later. But on June 22, Braun was detained in Munich. He is currently out on bail for EUR5 million.
Interestingly though, Wirecard is not licensed by the Monetary Authority of Singapore (MAS).
“Wirecard’s primary business activities in Singapore are to process payments for merchants and help companies issue pre-paid cards. MAS has required Wirecard to ensure that they keep customer funds arising from these activities in banks in Singapore,” says an MAS spokesperson.
“Wirecard entities in Singapore are not currently licensed by MAS. We have received a licence application from Wirecard under the new Payments Services Act. The new Payment Services Act provides for a grace period for entities conducting regulated activities to apply for the relevant licence. During this grace period, MAS may issue requirements to such entities,” adds the spokesperson.
The Payment Services Act, which regulates the provision of payment services in Singapore, came into force on Jan 28. Payment services regulated under the Act include both newly regulated payment services such as merchant acquisition services, and services which were already regulated by previous legislation such as money- changing and cross-border money transfer services.
All companies that provide payment services under the Payment Services Act must be licensed by the MAS and the regulator has begun accepting licence applications under this Act. Wirecard Singapore comes under the exemptions where the Act provides for grace periods for existing businesses ranging from six months to a year.
On June 21, the governor of Bangko Sentral ng Pilipinas, Benjamin Diokno, said the monies never entered the Philippines. “The international financial scandal used the names of two of the country’s biggest banks, BDO Unibank Inc. and the Bank of the Philippine
Islands, in an attempt to cover the perpetrators’ track,” Diokno said in a statement.
The following day, Wirecard’s board said the reported escrow accounts with EUR1.9 billion did not exist. The management board also announced that previous descriptions of the so-called Third-Party Acquiring business by the company were not correct, vindicating some two years of reporting by
Problems started surfacing in 2018, when a whistleblower passed some correspondence and Excel spreadsheets to which in turn started flagging outsized contributions — possibly inflated revenues — from “three opaque partners”, Al Alam Solutions in Dubai, PayEasy Solutions in the Philippines and Senjo in Singapore. According to FT, in 2017, Senjo, PayEasy and Al Alam together contributed revenues of EUR541 million and Ebitda of EUR290 million, which accounted for some 50% of FY2016’s revenue and earnings.
Last February, the Criminal Affairs Department (CAD) investigated Wirecard’s Singapore office for suspected accounting fraud and money laundering in relation to contracts used to boost sales and profits. The CAD investigation is ongoing.
In the latest twist to the tale, Wirecard failed to report its audited financial statements for FY2019 by June 19, which was required by its loan covenants. However, the company said it remains in discussions with its bank on credit lines. Wirecard also engaged investment bank Houlihan Lokey to restructure its loans. In addition, the company is examining a broad range of possible measures to ensure continuation of its business operations. These include cost reductions as well as restructuring, disposal or termination of business units and products segments. It has also assured customers that its IT systems continue to work without limitations.
In 2018, Wirecard displaced Commerzbank in the DAX and that resulted in funds and ETFs having to re-weigh their portfolios to include Wirecard. However, on June 22, one of Wirecard’s largest shareholders DWS said in a statement, “At the time of publication of the document on June 19, DWS did not hold any shares, bonds and financial instruments in relation to Wirecard AG in its actively managed mutual funds in Germany and Luxembourg.”
Meanwhile, Wirecard’s board said it has withdrawn the results of FY2019, announced in February this year, and 1QFY2020’s results announced in May. Preliminary figures showed FY2019’s revenues up 38% y-o-y to EUR2.8 billion, and Ebitda up 40% to EUR785 million. On June 25, Wirecard filed for insolvency.
For Singapore consumers and users of Wirecard’s solutions, there is nothing to worry about, because in and of itself, Wirecard does not issue the pre- paid cards. It only helps other companies to do so.
For investors, it is unclear whether the selling is over. While Wirecard appears to be part of the payments architecture for a cashless world, the word fraud has been bandied about in relation to the company’s financials.
DWS is not the only fund that sold its stake in Wirecard. Bloomberg reported that Devon Equity Management, which manages more than GBP1 billion ($1.7 billion) in AUM, has sold all of its Wirecard shares. In fact, several funds sold Wirecard on June 19 and June 22 following the announcements that EUR1.9 billion were missing, and then that they did not exist.
As at June 24, Wirecard’s largest shareholder, according to Bloomberg, is MBB Technologies with a 7.07% stake, followed by Vanguard with a 3.06% stake and Artisan Partners with 2.93%. Both MBB Technologies and BlackRock — which still owns 2.84% — were sellers on June 19. Deutsche Bank, of which DWS is a unit, still owns 2.84% of the company. On June 23, Wirecard closed at EUR17.15, down almost 85% year to date. E