Bank / Credit Union

Wirecard banks left holding a $1.8 billion bag

June 26, 2020

Wirecard AG's main banks are facing the loss of $1.8 billion in loans to the scandal-plagued fintech after it started insolvency proceedings this week.

Approximately 15 banks, including ABN Amro Bank NV, Commerzbank AG and ING Groep NV, were working with the company this week to negotiate its financial next steps when Wirecard filed insolvency proceedings on Thursday, according to a report on Yahoo Finance.

This move came as an unpleasant surprise to the banks which had granted a short reprieve on loan repayment to Wirecard until lenders could assess the company's long-term prospects.

Wirecard's decision to file for insolvency completes a scandal-filled downfall for the firm, which was once considered Germany's most successful up and coming businesses.

The company's collapse began when $2.15 billion, previously reported as cash on its balance sheet, couldn't be accounted for. Markus Braun, the now former CEO of Wirecard, resigned over the incident, but told accountants the money "probably didn't exist."

A criminal investigation was launched over the missing funds and shares in the company took a downward spiral. Once auditors proved the company had fraudulently recorded the funds, Braun was arrested, which triggered a collapse in the company's stock.

Wirecard's subsidiary, Wirecard Bank, was not included in the insolvency proceedings and deposits at the bank are insured for as much as $22 billion per client. Wirecard management claimed over-indebtedness was behind the decision to seek court protection in Munich.

Wirecard also has an outstanding bond worth approximately $560 million and a convertible bond worth approximately $1 billion.

Private investors are currently suing accounting firm, Ernst & Young for its work on Wirecard AG, stating the firm failed to flag that $1.1 billion in assets that were not properly recorded in the company's records.