Wire­card UK cus­tomers re­main frozen out of ac­counts

Rishi Su­nak’s tough stance when it came to telling the air­line to think again in its bailout plea is vin­di­cated as pri­vate deal nears

The Daily Telegraph - Business - - Front Page - By Michael O’Dwyer

WIRE­CARD’S UK di­vi­sion could be forced to call in ad­min­is­tra­tors as hun­dreds of thou­sands of con­sumers re­main locked out of their bank ac­counts fol­low­ing a scan­dal at the pay­ments firm.

The busi­ness has hired in­sol­vency spe­cial­ist Al­varez & Marsal to ex­plore op­tions for it af­ter the spec­tac­u­lar col­lapse of its Ger­man par­ent firm last week over an ac­count­ing scan­dal.

Hun­dreds of thou­sands of ac­counts with fi­nance firms that use Wire­card for pay­ments and card ser­vices re­main frozen af­ter the City watch­dog stepped in to block trans­ac­tions.

Reg­u­la­tors at the Fi­nan­cial Con­duct Au­thor­ity yes­ter­day said re­stric­tions will re­main in place un­til they are sat­is­fied cus­tomers’ money is safe.

The move has left con­sumers in a des­per­ate po­si­tion with­out ac­cess to cash, in­clud­ing some who need their ac­counts for ben­e­fits pay­ments. Firms us­ing Wire­card in­clude no-frills bank Pockit, which caters to 500,000 mostly vul­ner­a­ble con­sumers.

The Emerg­ing Pay­ments As­so­ci­a­tion in­dus­try group urged the FCA to un­freeze ac­counts as soon as pos­si­ble.

The watch­dog said it is putting pres­sure on Wire­card UK to re­solve prob­lems af­ter or­der­ing it not to dis­pose of as­sets or funds, or carry on reg­u­lated ac­tiv­i­ties. It said Wire­card had made good progress over the week­end to­wards meet­ing the con­di­tions im­posed.

Martin Lewis, founder of MoneySav­ingEx­pert.com, said: “De­cod­ing the FCA’s state­ment, those who are locked out of their ac­counts have a rea­son­able ex­pec­ta­tion that they will see the money by the mid­dle of this week.”

Cus­tomers of card busi­ness Curve re­gained ac­cess to their ac­counts yes­ter­day. A Wire­card UK spokesman said it was work­ing so busi­ness could resume as soon as pos­si­ble.

The case for a gov­ern­ment bailout out of Vir­gin Atlantic was al­ways weak. Thank­fully, in Rishi Su­nak we have a savvy Chan­cel­lor who set a high bar for tax­payer sup­port of trou­bled com­pa­nies from the out­set and quickly recog­nised that it was un­de­serv­ing of state aid. The Gov­ern­ment can­not be ex­pected to prop up a strug­gling air­line with a bil­lion­aire owner even in the ex­tra­or­di­nary cir­cum­stances of a global pan­demic.

Su­nak could eas­ily have al­lowed him­self to be pres­sured into step­ping in. Vir­gin is a high pro­file brand with an even more high pro­file backer in Sir Richard Bran­son, and the ty­coon had made an im­pas­sioned plea for help from his Caribbean hide­away.

Thou­sands of jobs are at stake too, and Vir­gin Atlantic’s sud­den dis­ap­pear­ance would leave Bri­tish Air­ways free to tighten its grip over the lu­cra­tive transat­lantic mar­ket.

But Su­nak’s de­ci­sion to stand firm will be fully vin­di­cated if Bran­son can pull off a pri­vately funded res­cue deal in the com­ing weeks. Ne­ces­sity is the mother of invention, as the old say­ing goes. The en­tre­pre­neur has been forced to find an al­ter­na­tive so­lu­tion, one that it has to be said, could end up be­ing a pretty com­pre­hen­sive res­cue pack­age.

Sky News re­ports that Bran­son, and the air­line’s other ma­jor share­holder Delta Air Lines, could pump in a com­bined £250m of fresh cap­i­tal. An­other £250m of debt fund­ing is ex­pected to come from Wall Street hedge funds, with David­son Kemp­ner and El­liott, bat­tling for con­tention.

And leas­ing com­pa­nies and credit card providers are be­ing asked to pro­vide fur­ther sup­port. The deal could even­tu­ally be worth up to £900m, al­most dou­ble the £500m re­quest made to the Trea­sury in April, hand­ing it a de­cent chance of nav­i­gat­ing the storm.

It is the right out­come but Vir­gin got this the wrong way round. Self-help should have been Plan A. As Su­nak has made clear, the Trea­sury should only be called upon when all other emer­gency fi­nanc­ing op­tions have been ex­hausted.

The Chan­cel­lor has stuck to his guns on the strict re­quire­ments of the Pro­ject Birch scheme. Just six com­pa­nies are re­ported to be in talks about res­cue loans, all of which come from strate­gi­cally im­por­tant en­ter­prises that would cause dis­pro­por­tion­ate harm to the econ­omy if they failed, an­other of the Gov­ern­ment’s terms.

Air­lines don’t fit into that cat­e­gory. Steel and car­mak­ing on the other hand do, es­pe­cially if the UK is go­ing to cling on to what is left of its man­u­fac­tur­ing base.

Vir­gin clearly had other op­tions, they just hadn’t been prop­erly ex­plored, per­haps be­cause its two ma­jor share­hold­ers were con­cerned about pos­si­ble di­lu­tion. Su­nak, who brings vi­tal com­mer­cial acu­men to the role af­ter work­ing in pri­vate eq­uity, would have spot­ted this a mile off.

Few min­is­ters will emerge from this cri­sis with their rep­u­ta­tion en­hanced but the Chan­cel­lor will. The cri­sis has been a bap­tism of fire for a young, in­ex­pe­ri­enced min­is­ter but he has re­sponded adeptly, putting other Cabi­net mem­bers to shame. One of the many things he got right was tak­ing a tough line with those that were quick to get the beg­ging bowl out.

‘Vir­gin got this the wrong way round. Self-help should have been Plan A’

Wire­card shadow falls on EY

The col­lapse of Ger­man fin­tech star Wire­card has been com­pared to En­ron. The scan­dal has cast a huge shadow over Ger­many’s estab­lish­ment, rais­ing se­ri­ous ques­tions about cor­po­rate gover­nance and reg­u­la­tion. Law and or­der and re­spect for the rules are in­grained in the coun­try’s DNA.

It has em­bar­rassed a na­tion in the same way that En­ron’s bank­ruptcy brought shame on the en­tire Amer­i­can sys­tem, though it was an or­der of mag­ni­tude much greater.

Still, it is an ob­vi­ous anal­ogy, and one that could be ex­tended to Wire­card’s au­di­tors EY for fail­ing to spot that nearly €2bn (£1.8bn) was miss­ing de­spite look­ing af­ter the books for a decade.

James Freis, Wire­card’s new boss, has said that rou­tine checks should have been enough to spot the scan­dal. In­stead, it fell to KPMG to raise the flag af­ter an in­de­pen­dent au­dit failed to track down around €1bn in turnover. A 1,500-strong class ac­tion in­vestor law­suit will pile the pres­sure on EY to act.

But it is the mere men­tion of En­ron that will be the source of great­est dis­may at the top of EY. The im­plo­sion of the en­ergy bro­ker ul­ti­mately brought down ac­count­ing gi­ant Arthur An­der­sen, parts of which were gob­bled up by EY.

Morale is al­ready low. The pro­fes­sion has faced wide­spread calls for a shake-up and EY’s rep­u­ta­tion has been bruised by its in­volve­ment in other big cor­po­rate blow-ups in­clud­ing FTSE 100 hos­pi­tal op­er­a­tor NMC Health.

Ul­ti­mately Wire­card’s down­fall should speed up the separation of au­dit prac­tices from non-au­dit ser­vices but as the in­dus­try has proven re­peat­edly, it is fiercely re­sis­tant to real change.

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