A forensic financial expert broke down how $2 billion vanished from the balance sheet of Wirecard, whose ex-CEO was just arrested

A forensic financial expert broke down how $2 billion vanished from the balance sheet of Wirecard, whose ex-CEO was just arrested
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  • The German payments group Wirecard is in a swirling scandal after over $2 billion went missing from its balance sheet.
  • The scandal intensified when Markus Braun, the CEO who left the company on Friday, was arrested on Monday night.
  • A financial forensics team at CFRA Research noted that Wirecard's remaining balance was about the same amount it lost.
  • Wirecard had said that if it was unable to publish its full-year 2019 and first-quarter 2020 results by June 19, about $2 billion worth of loans to the company could be terminated.
  • The research team found that as the company's remaining balance is tied to regulated entities, it did not have easy access to the $2 billion in cash.
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The German fintech group Wirecard saw its shares crash by over 80% over two days last week after its auditor, EY, said it could not trace €1.9 billion (about $2 billion) in cash, representing roughly a quarter of Wirecard's balance sheet.

On Monday, Wirecard said the missing amount likely never existed, and by Tuesday, Markus Braun, the CEO who left on Friday, had been arrested in Germany, accused of inflating the company's balance sheet.

Braun's bail was set at €5 million, and prosecutors said he would have to report to the police weekly, Reuters reported.

Wirecard said last week that if it was unable to produce a set of new financials by the end of this week, it would have to terminate about $2 billion in loans it had received.

Richard Sbaschnig, the head of the financial forensics research team at the investment firm CFRA, told Markets Insider that Wirecard now faces a liquidity crunch because it would struggle to find the funds to pay back these loans.


"There are typically regulatory restrictions on accessing this cash for general corporate purposes," Sbaschnig told CNBC in a separate interview.

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Here are a few key points from Markets Insider's conversation with Sbaschnig about the state of Wirecard's finances:

  • KPMG, the auditor that conducted Wirecard's past forensic accounting reviews, had flagged a trustee account with about €1 billion in it as having "insufficiently documented payments."
  • From 2010 to 2019, Wirecard's cash flow from operations was about €2 billion, implying that the missing €1.9 billion could have wiped out nearly a decade of its reported cash generation and could evoke "tight liquidity" for the company.
  • As of September 30, the fintech group's total cash, interest-bearing securities, and fixed deposits totaled €3.8 billion. If €1.9 billion remains unaccounted for, that leaves a remainder of €1.9 billion of potential available liquidity.
  • The balance is still less than the €2 billion worth of loans that Wirecard said could be terminated if it did not produce audited financial results, which it has now withdrawn. It remains unclear whether these loans would be due for repayment immediately.
  • Further complicating Wirecard's cash position is that as of September, €1.7 billion of cash — nearly all the remaining cash balance — was held at regulated entities: Wirecard Bank in Germany and Wirecard Card Solutions in the UK.
  • Typically, regulatory restrictions obstruct access to cash for general corporate purposes, meaning Wirecard would likely struggle to use these funds to repay any loans.

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One suggestion floated in recent days is that another firm could take over Wirecard.


Though the fintech space is generally buzzing with merger activity, Sbaschnig said there would be complications related to an external rescue for Wirecard:

  • According to KPMG's audit of the company's filings, 100% of Wirecard's profits are linked to three third-party businesses: CardSystems Middle East, Wirecard UK & Ireland, and Wirecard Technologies.
  • The "lion's share" of profits were generated by these three companies as of 2016, after which its profitability remained limited, with negative reported full-year earnings in 2018.
  • Wirecard does not have licenses to function in many of the markets it operates out of, instead using these third-party firms.
  • Wirecard is known to have a sizeable amount of business from certain areas of the market (such as gambling, or smaller Asian firms) that some companies in the payments space tend to avoid.

The firm had said its missing cash was meant to be held in two banks in the Philippines. The central bank of the Philippines denied the claim and said documents suggesting this were fake.

"The initial report is that no money entered the Philippines and that there is no loss to both banks," said Benjamin Diokno, the central bank's governor, according to Deutsche Welle.

Wirecard did not respond to Markets Insider's request for comment.

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