What’s Going On Here?In a twist worthy of a certain Baltimore-based crime drama, the ex-CEO of fallen payments giant “The Wire” Wirecard was arrested late Monday, charged with fraud. What Does This Mean?Last week investors who’d long bet against Wirecard’s shares, citing financial irregularities, were finally vindicated. The German firm revealed independent accountants had failed to find $2.1 billion the company claimed it had to hand – and its boss promptly bowed out.
On Monday, Wirecard admitted its missing money was probably as fictional as an HBO show; on Tuesday, German authorities revealed they’d brought in the company’s recently departed head honcho. He stands accused of fraudulently inflating Wirecard’s revenue and cash balance in a bid to curry favor among investors. While time will tell whether he acted alone, the buck and the blame stops – for now – at the top. Why Should I Care?For markets: Ups and downs.
Wirecard’s stock has lost over 80% of its value since the scandal broke, yet its share price rose nearly 20% on Tuesday. Naysayers might call that a “dead cat bounce” and leave well enough alone. But optimistic investors might wonder at Wirecard’s value falling from almost $12 billion to $2 billion in a matter of days – a much bigger drop than the value of the missing money – and see the former CEO’s arrest as a sign things are clearing up. Wirecard may still be a profitable business, and those investors might therefore think its shares should be worth more.
The bigger picture: Cash is dead; long live e-cash.
Besides payments processor Wirecard, the likes of PayPal and Square have also benefited from a major shift away from physical cash, particularly in developed markets. That trend may well accelerate post-coronavirus, which could explain why the shares of non-scandal-struck PayPal and Square are both at record highs – and why British fintech Checkout.com was valued at $5.5 billion this week as it raised a fresh $150 million of funding. | 