German firm Wirecard continues its spiral into administration after its offices in Munich and Austria were raided by German prosecutors. The German fintech is under investigation over a missing €1.9 billion from its accounts with the company’s former chief Markus Braun and three of the firm’s executive board members under individual investigation.
The payment processing firm’s collapse has spiralled since the missing funds were revealed with Braun arrested on suspicion of market manipulation and false accounting. The firm has admitted that it’s likely the missing cash ‘does not exist’ and the company’s bonds look set to join the infamous ‘no coupon club’ come September.
The no coupon club is an unofficial club of those who did not even manage to make their first interest payment, with Wirecard’s due in September. The scandal-hit company filed for insolvency last week meaning they’re unlikely to make the first coupon on €500 million of bonds it first raised nine months ago. An interest payment of 0.5% is due in September.
Wirecard were helped out last year by Deutsche Bank and Credit Agricole who acted on the German fintech’s behalf to sell the bond to investors. Wirecard was able to get the backing of bond investors thanks to an investment-grade rating from Moody’s. Moody’s gave Wiretech an investment-grade rating of Baa3, the lowest rating.
The Wirecard fall is a stark reminder to investors of the importance of due diligence. Whether it’s hedge funds, real estate or private equity, the need for investors to conduct due diligence cannot be understated. In a recently published white paper on the fall of Wirecard, Castle Hall, a leading due diligence company, highlighted the key areas that the company had failed and the lessons that investors can take from the saga.
The whitepaper referred to a Financial Times report that alleged Wirecard’s auditor, EY Germany, had failed to independently confirm cash balances held with Asian trustees. Investors looking to carry out due diligence are advised to use specialist firms who can offer them a more robust audit. Get in touch with Quadrin today to discuss all your due diligence needs.
And a final word from one of our in-house experts here at Quadrin:
“A couple of points to think about. This could be the ‘Enron’ moment for EY (and of course Enron brought down Arthur Anderson). Secondly, at present, Wirecard has been hived off and continues to trade normally.”