Wirecard files for insolvency after US$2b goes missing, CEO's arrest

Berlin

WIRECARD AG filed for insolvency, the culmination of an accounting scandal that led to the arrest of its chief executive officer (CEO) and left the German payment-processing firm unable to find over US$2 billion missing from its balance sheet.

Wirecard management cited over-indebtedness as the reason behind the decision to seek court protection in Munich, said a statement. The company also said it is considering whether the insolvency proceedings should be applied to its subsidiaries.

Wirecard said it was unable to come to an agreement with lenders, and was now facing the likely termination of 800 million euros (S$1.25 billion) worth of loans on June 30 and that of another loan of 500 million euros on July 1.

"With this step, Wirecard AG wishes to protect the appropriate interests of all parties involved with the company, including creditors, customers and employees", the statement read.

Wirecard Bank is not included in the proceedings, the statement also said. German financial regulator, the Federal Financial Supervisory Authority (BaFin), has already appointed a special representative to oversee the bank and "the release processes for all payments of the bank will be located exclusively within the bank and no longer at Group level".

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The insolvency proceedings now leave Wirecard's creditors facing lengthy negotiations with court-appointed administrators over how much they will get back out of the money they are owed. Banks who lent to Wirecard - including Commerzbank, ABN Amro, LBBW and ING - have been demanding more clarity from the company in return for the extension of almost US$2 billion in debt.

Holders of 1.4 billion in euro bonds and convertible debt also stand in line to try to recoup at least a potion of their money. The company's euro notes due in 2024 traded at a record low of just 12 US cents on the euro on Thursday.

The banks hired FTI Consulting and Allen & Overy as advisers. Wirecard has retained Houlihan Lokey.

The insolvency also raises questions on the future of Wirecard's licences. The company has licences with Visa, Mastercard and JCB International, through which its banking arm issues credit cards. If Wirecard is unable to find the missing cash, Visa and Mastercard may have cause to revoke the licences.

Wirecard's spectacular fall from grace is the first for a DAX30-listed company. In terms of assets, its insolvency has the potential to rank below only those of giant retailer Arcandor and manufacturer Babcok Borsig, which collapsed in 2009 and 2002 respectively.

Germany's BaFin has come under intense pressure for its handling of the scandal, and the company's collapse is already prompting calls for a parliamentary inquiry into the government's responsibility. BLOOMBERG