How Wirecard erased nearly all of its market cap in one week

Shares of the SoftBank-backed fintech firm plunged further after its board filed for insolvency on Thursday.

German payments company Wirecard AG's share price nosedived nearly 90% after its board revealed on Thursday 25 June 2020 that it would be filing for insolvency.

Shares opened at €$2.35 each on Friday 26 June, representing a 97% share price decline since news first broke of the company’s fraudulent accounting and business practices.

Wirecard’s ‘ability to continue… is not assured’

The SoftBank-backed group’s Management Board stated in a press release 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.

The board added that it has ‘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’.

Read more: SoftBank CEO resigns from Alibaba's board of directors

€1.9 billion missing from Wirecard’s balance sheet

Earlier this week, everything came crashing down for the once-fintech darling, after it confirmed an 18-month old accounting fraud rumour.

The financial services firm’s long-time auditor Ernst & Young had informed that some €1.9 billion in cash (US$2.1 billion) – equating to roughly a quarter of the company’s balance sheet – were missing from its FY2019 balance sheet.

Then on Monday 22 June 2020, the company said that ‘there is a prevailing likelihood that the bank trust account balances in the amount of 1.9 billion EUR do not exist’.

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

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Allegations of fraud started in early-2019

As IG previously reported, Wirecard’s share price burgeoned more than 2,000% between November 2006 and April 2019. This had been predicated on equally strong revenue growth – €2,016 million at the end of FY2018 versus €40.46 million at the end of 2004.

However, the Financial Times (FT) in early-2019 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.

Wirecard Bank not included in insolvency proceedings

For now, as the firm examines whether insolvency applications must be filed for subsidiaries of the Wirecard Group, it has clarified that Wirecard Bank AG is not part of the insolvency proceedings of Wirecard AG.

Germany’s financial regulatory authority BaFin has already appointed a special representative for Wirecard Bank AG. In future, the release processes for all payments of the bank will be located exclusively within the bank and no longer at group level.

The company concluded by saying that it will continue to pursue possible chances of reorganisation in coordination with the temporary insolvency administrator to be appointed by the insolvency court.

How to trade Wirecard shares

With IG, you can trade on the 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:

  1. Create a live or demo IG trading account or log in to your existing account
  2. Type the 'Wirecard' or ‘WDI’ in the search bar and select it
  3. Choose your position size
  4. Click on ‘buy’ or ‘sell’ in the deal ticket
  5. Confirm the trade

Read more on how to trade volatility.

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