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Why the Wirecard share price soared 200% despite insolvency

German payments company Wirecard’s shares soared nearly 200% on Monday despite a recent insolvency filing.

Wirecard share price latest forecast Source: Bloomberg

German financial services company Wirecard AG's share price skyrocketed some 196% within the first 30 minutes of trading on Monday 29 June 2020, giving the stock a much-needed respite after last week’s massive sell-off.

The troubled payments solutions provider saw its shares open the session at €1.70 a share – nearly 31% higher than last Friday’s closing price of €1.30, before rallying further to an intraday high of €3.85 at 09:30 CET.

Evidently, the sudden spike had not been predicated on any company announcements, major analyst reports, or market sentiments.

This had prompted some news outlets to report the spike as a dead cat bounce. A dead cat bounce is defined as a temporary recovery in markets after a substantial fall, caused by speculators buying assets in order to cover their positions.

Wirecard closed Monday’s session at €3.34 a share, based on IG data.

A timeline of Wirecard’s rapid fall

Nevertheless, Wirecard’s market capitalisation is still down some 97%, since reports of potential accounting malpractice surfaced two weeks ago. On 18 June, the firm’s auditor Ernst & Young informed that some €1.9 billion in cash (US$2.1 billion) were missing from Wirecard’s FY2019 balance sheet, which the company neither confirmed nor denied.

Then on 22 June, Wirecard confirmed the auditor’s findings, when it stated via a press release that ‘there is a prevailing likelihood that the bank trust account balances in the amount of 1.9 billion EUR do not exist’. Share price immediately crashed 45%.

Later that day, former chief executive Markus Braun turned himself in to the German police. He has since been released on a €5 million bail.

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The straw that truly broke the camel’s back was when the company’s Management Board announced that it was filing for insolvency on Thursday 25 June.

The board had stated that the application was ‘due to the threat of insolvency and over-indebtedness’ concerning loans of €800 million due on 30 June 2020 and a further €500 million due on 01 July 2020.

It added that it had ‘come to the conclusion that a positive going concern forecast cannot be made in the short time available’. As such, its ‘ability to continue as a going concern is not assured’.

Shares opened 90% lower at €2.35 apiece the following day, before sinking further to close the week at an all-time low of €1.30 a share.

Wirecard’s share price grew over 2,000% between 2006 and 2019

Once a favourite of fintech investors, Wirecard’s share price burgeoned more than 2,000% between November 2006 and April 2019. This had taken place in lieu with equally strong revenue growth – €2,016 million at the end of FY2018 versus €40.46 million at the end of 2004.

Trouble began brewing by early 2019, when the Financial Times (FT) accused the company – a constituent on the DAX 30 – of forging and falsifying accounts, among other offences.

An independent examination conducted by KPMG next did not provide conclusive answers that cleared the company of any wrongdoings.

How to trade Wirecard shares with IG

With IG, you can trade on the world's best trading platform, and back whether you think Wirecard's shares will rise or fall in value. Go long (buy) if you think they will increase in value, or go short (sell) if you think they will decrease in value.

To take a position, follow these simple steps:

  • Create a live or demo IG trading account or log in to your existing account
  • Type 'Wirecard' or ‘WDI’ in the search bar and select the instrument
  • Choose your position size
  • Click on ‘buy’ or ‘sell’ in the deal ticket
  • Confirm the trade

Read more on how to trade volatility.

The information on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG Bank S.A. accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer.

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