BERLIN (Reuters) – Wirecard’s auditor declined to sign its 2019 accounts on missing $ 2.1 billion, dropping its shares by more than 60%, as the German payments firm said the delay could lead to the call for billions of loans on Friday.
EY was unable to confirm the existence of 1.9 billion euros ($ 2.1 billion) in cash balances in fiat accounts, representing about a quarter of its balance sheet, Wirecard said, adding that there was evidence of “spurious pay confirmations”.
Chief Executive Officer Markus Braun said in Thursday’s statement that Wirecard WDIG.DE, which was founded in 1999, urgently sought to clarify the balances in question.
“It is currently not clear whether fraudulent transactions to the detriment of Wirecard AG have taken place. Wirecard AG will file a complaint against unknown persons, ”said Braun.
Wirecard later added that she had appointed James Freis to the board for compliance, replacing board member Jan Marsalek with immediate effect.
The cabinet also warned that failing to provide certified annual and consolidated accounts by Friday, around € 2 billion in loans would be terminated.
Internal auditor EY had regularly approved Wirecard’s accounts in recent years, and his refusal to sign for 2019 confirms the shortcomings noted in an external investigation by KPMG in April.
Thursday’s turn is a setback for Munich-based fintech, which was hailed as a local success and propelled into the top-tier German DAX index in 2018 at the expense of Commerzbank.
Wirecard has long been the target of short sellers who questioned its finances and “shorted” its stock, which fell 60% in Frankfurt, wiping 8 billion euros from its market value.
“We are stunned,” said Ingo Speich, head of corporate governance at Deka Investment, a $ 350 billion fund manager, which owns Wirecard shares, while calling for a change at the top.
“A new start is now more urgent than ever. We hope that the loss of market confidence will not impact its business operations, ”Speich said.
Bondholders were also shaken, with its € 500 million bond due 2024 DE000A2YNQ58 down more than 40 cents and last bid at 37 cents on the euro, according to Tradeweb data.
Wirecard had previously delayed its annual report after the KPMG report, which dealt with allegations of fraud and false accounting in a series of Financial Times reports.
In the most serious conclusion, covering the years 2016-18, KPMG said it was unable to verify the existence of € 1 billion in Wirecard revenue reserved through three obscure third-party acquiring partners.
Activist investors, led by British fund manager Chris Hohn, have seized the KPMG audit to demand the departure of Braun, which holds 7% of Wirecard’s capital. Hohn then filed a criminal complaint with the Munich prosecutor.
German financial watchdog Bafin, who previously suspected short sellers of colluding to manipulate Wirecard’s share price, has turned his attention back to the company.
Prosecutors raided Wirecard’s headquarters in a suburb of Munich on June 5 and initiated proceedings against the management in connection with the investigation initiated by Bafin. A spokesperson said he would investigate the latest delay in results.
Wirecard said he was cooperating with the investigation and the allegations against him were unfounded.
“Today is partial justification for myself and other critics,” said Fraser Perring, co-author of a bearish report on Wirecard by Zatarra Research in 2016.
“Prosecutors must act decisively to hold the wrongdoers to account. “
(Graphic: Wirecard shares over the past two years -)
Additional reporting by Thyagaraju Adinarayan and Yoruk Bahceli in London, John O’Donnell in Frankfurt and Joern Poltz in Munich; Editing by Mark Potter, Keith Weir and Alexander Smith