Whatâs Going On Here?Shares of German payments processor Wirecard fell over 70% late last week after it emerged that the company had managed to mislay over $2 billion of cash. What Does This Mean?For years, âshort sellersâ â who bet a companyâs share price will decline and sometimes campaign publicly to that end â have argued Wirecardâs stock shouldnât be as valuable as it was: something didnât add up in the companyâs accounts. Time after time, however, Wirecard batted back the claims, silencing many naysayers.
Until now, that is. Delaying the publication of its 2019 earnings for the fourth time, Wirecard revealed that independent accountants couldnât confirm the existence of $2.1 billion it claimed it had on hand. Two Asian banks alleged to have held Wirecardâs cash denied on Friday that the firm was a client, with one suggesting that a rogue employee might have falsified documents for Wirecard in the past. Shortly after that bombshell, Wirecardâs CEO resigned. Why Should I Care?For markets: A long way down.
Wirecardâs stock collapsed on Thursday and Friday: few dared hazard a guess at just how bad things might be for the German tech hero that was once more valuable than Deutsche Bank. Adding to the misery, some $2.3 billion worth of Wirecardâs loans may get called in if it doesnât find its missing cash â and investment bank Morgan Stanley estimates that, absent its missing billions, the company only has $250 million in the kitty. One group benefiting from Wirecardâs demise, however, are those aforementioned short sellersâŚ
The bigger picture: Whoâs to blame?
Company analysts often find it hard to call out a legit-looking earnings report even when something seems amiss â and as positive opinions mean more business for their advisory colleagues, itâs perhaps unsurprising they didnât catch Wirecard. The role of accountancy firm EY in signing off previous results is likely to come in for serious scrutiny, though, especially given investigations for other conflicts of interest as recently as this year. | 