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After the Wirecard bankruptcy: Where can investors get something now?


Wirecard is practically imploded. Investors who have remained loyal to the Dax company until recently have lost a lot of money. Can creditors, shareholders and investors save anything after the collective awakening? An overview of a desperate situation.

Negotiations with the banks were still ongoing, but at some point the new CEO James Freis must have left faith. “The board has come to the conclusion that a positive continuation forecast is not possible in the short time,” said the company, about four hours after the bankruptcy application. Wirecard would have had to raise around 1.3 billion euros in the next few days to service expiring loans. Freis saw himself unable to do this.

With a mixture of horror and incredulous amazement, investors, bondholders, customers, the banks involved and, of course, the approximately 5000 Wirecard employees look at the events in Aschheim on this day. No Dax group has practically imploded so quickly. And many are wondering today: What will become of the money that they put into stocks, bonds or derivatives or that they invested at Wirecard Bank?

The latter is still relatively easy to clarify: Although Wirecard Bank AG is a subsidiary of Wirecard AG, it is not initially affected by the bankruptcy application. A special representative from the financial supervisory authority Bafin is now making sure that no customer deposits from the bank – most recently there was talk of around 1.7 billion euros – flow to the parent company and business can continue. Wirecard Bank not only manages current accounts, but is also active in the credit card business in cooperation with Visa and Mastercard.

No money should leave the bank without a reason, it is said from supervisory circles. Wirecard AG has therefore had to shift all approval processes from the group to the bank level. In addition, customer deposits are protected through the security fund of private banks in Germany up to a total of EUR 100,000 per customer.

Wirecard 1,28

The situation for shareholders is also relatively easy to clarify: Your investments in the company are usually gone in the event of bankruptcy. The share recently traded just above the one-euro mark, so many equity investors who did not exit before Thursday last week should have suffered very painful losses. It is completely open whether and how the course can ever recover, for example through the sale of individual parts of the company. However, it is more likely that shareholders will have to make do with a total loss.

Because in bankruptcy administration, shareholders are at the very end of the chain. First, the Treasury receives its tax from the bankruptcy estate, then the social insurance is serviced, then the outstanding bank loans, then outstanding invoices are paid by suppliers – and only then the claims of the owners. Bank loans alone have recently amounted to around 1.6 billion euros; in addition there are those investors who had participated in the Wirecard bond. The bond, with a volume of EUR 500 million, was only issued with a top rating in September last year and theoretically runs until 2024.

In total, the total of the liabilities should amount to 3.5 billion euros. On the other hand, there is currently a balance sheet that can only be described as a black box and from which at least 1.9 billion euros have disappeared. A large part of the sales of 2.8 billion euros provisionally announced for 2019 in February should have only existed on paper, according to corporate circles – combined with a devastating judgment. “There is no way to repay this debt from our healthy core business.”

Hedge funds are considered buyers

The only way for creditors to get their money now is to sell parts of the company. In fact, industry experts attest Wirecard to have been at the forefront with its services – the handling of financial transactions, especially in online trading. Although there are other providers here, too, the Wirecard services should always have been technically impressive. It is therefore not out of the question that buyers can be found for this technical core of the company. This will be the job of an insolvency administrator, the process can take a long time – especially when it comes to distributing possible sales proceeds and calculating the ratios for the creditors.

There may also be an opportunity for the loans and bonds at risk of default. Hedge funds have specialized in this business, buying up such paper and then trying to get higher quotas for themselves, also through compensation proceedings. It is quite possible that the investment bank Houlihan Lokey, which specializes in restructuring, and which Wirecard had only hired last week, is already looking for such buyers.

“It is unlikely that anything will remain in the course of the bankruptcy proceedings,” says a lawyer entrusted with the matter. Even if money flows into the Wirecard cash register through the sale of participations by Wirecard AG – such as Wirecard Technologies AG with a reported annual result in 2018 of around 130 million euros or the bank with a result of 1.3 million euros it is unlikely that this sum will be enough to cover the claims of the creditors even in the slightest.

Investors can join lawsuits

Nevertheless, investors should file their claims and join lawsuits. This also applies to shareholders. Several large law firms such as the renowned investor specialist Tilp from Tübingen are already drumming for large claims for damages. Since there will be little to get from the company itself, they are more likely to target auditors, supervisors, the board of directors and the supervisory board. Management boards and supervisory boards are also liable for their personal assets in the event of violations of accounting law and capital markets law.

This article first appeared on Capital.de. Revised June 26, 2020.

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