A forensic financial expert broke down the numbers behind scandal-hit German fintech Wirecard, whose ex-CEO was just arrested

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German payments group Wirecard is in the middle of a swirling scandal after over $2 billion went missing from its balance sheet.
The scandal intensified when ex-CEO Markus Braun — who only left the company on Friday — was arrested Monday night.
A financial forensics team at the Centre for Financial Research and Analysis (CFRA) noted that Wirecard’s remaining balance is equivalent to about the same amount it lost.
Earlier, Wirecard stated that in case it was unable to publish its full year 2019 and first quarter 2020 results by June 19, then around $2 billion worth of loans to the company could be terminated.
The research team found that as the company’s remaining balance is tied to regulated entities, it does not have ease of access to the $2 billion in cash.
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German fintech group Wirecard saw its shares crash by over 80% over two days last week when its auditor EY said it could not trace 1.9 billion euros ($2 billion) in cash, representing roughly a quarter of its balance sheet.

On Monday, Wirecard claimed the missing amount likely never existed, and by Tuesday, former CEO Markus Braun had been arrested in Germany, suspected of inflating the company’s balance sheet.

Wirecard admitted last week that if it is unable to produce a set of new financials by the end of this week, it will have to terminate around $2 billion of loans it has received.

Speaking to Markets Insider, Richard Sbaschnig, the head of the financial forensics research team at investment firm CFRA, said that Wirecard now faces a liquidity crunch because it would struggle to find the funds to pay back these loans.

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“There are typically regulatory restrictions on accessing this cash for general corporate purposes,” Sbasching told CNBC in a separate interview.

Here are a few key points from Markets Insider’s conversation with Sbaschnig about the state of Wirecard’s finances:

KPMG, the auditor that conducted Wirecard’s past forensic accounting reviews, previously flagged a trustee account with about 1 billion euros ($1.2 billion) in it as having “insufficiently documented payments.”
Over the span of 2010-2019, Wirecard’s cash flow from operations accumulated about 2 billion euros ($2.3 billion). This implies the missing 1.9 billion euros potentially wiped off nearly a decade of its reported cash generation and could evoke “tight liquidity” for the company.
As of September 30 2019, the fintech group’s total cash, interest-bearing securities, and fixed deposits totalled 3.8 billion euros ($4.3 billion). Out of this amount, if 1.9 billion euros remains unaccounted for, this leaves a remainder of only 1.9 billion euros of potential available liquidity.
The balance is still less than the 2 billion euros worth of loans that Wirecard said could be terminated in case it was unable to produce audited financial results, which it has now withdrawn. It remains unclear if these loans would be due for repayment immediately.
Further complicating Wirecard’s cash position is that as of September last year, 1.7 billion euros ($1.9 billion) of cash was held at regulated entities …read more

Source:: Business Insider


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