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
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.