By Steve Goldstein, MarketWatch
Shares in Wirecard lost nearly two-thirds of their value as the German payment processor said on Thursday its auditor can’t find evidence for a quarter of the cash on its balance sheet.
Wirecard /zigman2/quotes/201427212/delayed DE:WDI -6.93% /zigman2/quotes/208618968/delayed WCAGY -4.31% shares close 63% lower as the firm said Ernst & Young said it didn’t have sufficient audit evidence for €1.9 billion euros in cash.
“There are indications that spurious balance confirmations had been provided from the side of the trustee,” the company said.
“Previously issued confirmations by the banks were no longer recognized by the auditor. All parties involved are endeavoring to clarify the matter as quickly as possible,” said Markus Braun, Wirecard chief executive, in a statement. “It is currently unclear whether fraudulent transactions to the detriment of Wirecard AG have occurred.”
Wirecard said the banks managing the escrow accounts are two Asian banks that have investment grade ratings. The trustee, who has been in office since 2019, holds numerous mandates in Asia, Wirecard said.
The DAX /zigman2/quotes/210597999/delayed DX:DAX -0.70% component postponed its 2019 annual financial statements for a fourth time, and if not completed by Friday, some €2 billion of loans can be terminated.
It is the latest twist in a long-running saga. The Financial Times reported in October that Wirecard staff appeared to have conspired to fraudulently inflate sales and profit at subsidiaries. Wirecard has denied those charges, while KPMG has conducted a special investigation and said it couldn’t prove the revenue of its third-party acquiring business.
Many short-sellers had bet against the company , including Marshall Wace and TCI Fund Management, according to regulatory disclosures.
“Even today Wirecard’s long standing CEO Marcus Braun has brazenly tried to portray the company as a victim of fraud and instead tried to focus investors on apparently strong reported revenue growth,” said Barry Norris, manager of the Argonaut Absolute Return Fund, who said the stock was his biggest short position. “During our first-quarter conference call we previously described the company as ‘having more red flags than you would see at a communist rally.’”
Wolfgang Donie, an analyst at NordLB, cut the stock’s rating to sell from hold, and his target price to 20 euros from 80 euros, saying the new allegations are leading to an “existential crisis.”
Germany’s stock-market regulator separately is investigating Braun over insider-trading allegations. Braun held 7% of the stock, according to FactSet data, making him the largest shareholder.