How Germany considered rescuing Wirecard days before its doom

How Germany considered rescuing Wirecard days before its doom

News: How Germany considered rescuing Wirecard days before its doom.

FRANKFURT (Reuters) – The federal government examined the possibility of a rescue of Wirecard just three days before the collapse. This comes from Reuters’ records, which show that officials were blindly affected by the country’s biggest post-war fraud scandal.

The payment company filed for bankruptcy on June 25 last year and owed nearly $ 4 billion to creditors after opening a $ 1.9 billion ($ 2.3 billion) hole in its accounts that according to auditor EY, it was the result of a sophisticated global fraud.

The documents include previously unreported details of the ministry’s investigation into the use of pandemic bailout funds to save Wirecard just before its implosion last summer and show that officials misjudged the scandal.

On June 22nd, just a few hours after the company announced the 1.9 billion euros in its accounts, which probably “do not exist”, Deputy Finance Minister Jörg Kukies sent a nine-page memo to Finance Minister Olaf Scholz, in which the concerns of the The company was in imminent danger and outlined a rescue plan with funds from the Landesbank KfW.

“A bank run could bring Wirecard into liquidity problems,” wrote officials. “It is not currently expected that Wirecard’s creditors … will feed it to the wolves.”

The documents also include previously unreported details about how Wirecard representatives and German officials had worked closely to drive the company’s expansion overseas.

The Treasury, Scholz and the government declined to comment, with the exception of an official who said support for the company abroad was “within the normal scope of our economic diplomacy.” German officials have previously said Wirecard received no special treatment and Reuters has no independent evidence to back it up.

The treasure trove includes thousands of pages of emails, chat messages, and memos provided by federal government ministries for a parliamentary investigation into the company’s collapse.

The implosion of a $ 28 billion company, seen as a national success story, led German lawmakers to accuse the government and regulators of having alleged regularities in the company’s accounting since 2016. not having noticed.

The legislature of the investigation will ask Scholz and Chancellor Angela Merkel about the government’s handling of the scandal in the next month.

Scholz – referred to as “M” in the correspondence of the employees of the Ministry of Finance – aims to replace Merkel as the German election officer in September when she leaves her post. He reacted to the Wirecard scandal and granted the supervisory authorities more powers to detect and investigate misconduct.

Things quickly got out of hand at Wirecard in June 2020. The company announced a delay in its income statement, its chief executive resigned and its chief operating officer was suspended.

On June 22nd at 2:48 a.m., the company announced that its accounts were missing 1.9 billion euros.

Hours later that same morning, the email traffic shows that Scholz’s deputy Kukies, who was considering whether the German airline Lufthansa should receive a rescue operation for pandemics from KfW, urged colleagues to urgently check whether Wirecard could get money could.

“An initial assessment is to be included in an M briefing document that should be with M this evening,” wrote an aide of Kukies on his behalf.

Related reporting

Timeline: rise and fall of Wirecard, a German Tech-Champion

In the assessment, a document for M, which was marked as “very urgent” and “confidential”, Kukies and his employees, who were not named individually, explained to Scholz the importance of Wirecard for payment processing, including for the supermarket giant Aldi .

While acknowledging their problems, they suggested that Wirecard’s business, which included a bank, was solid and unlikely to go bankrupt immediately.

“The press reports that Wirecard’s operational business is going well despite the coronavirus crisis and despite the missteps,” the document says. The missteps were not discussed in detail.

The government dropped the idea of ​​a rescue package in the days that followed, partly due to questions about whether Wirecard’s business was sustainable over the long term, as the documents show.

It is “very unlikely” that the ministry’s external advisors would “confirm that there is an economically viable business model,” the same document told M.

‘GOVERNMENT STANDS WITH WIRECARD’

Danyal Bayaz and Matthias Hauer, two German lawmakers involved in the investigation into the scandal, told Reuters that their investigation would investigate the Ministry of Finance’s investigation into a rescue package for Wirecard, as well as government lobbying to support the company’s expansion in China .

These episodes demonstrated the government’s misguided willingness to endorse Wirecard and its refusal to take seriously the allegations made by its critics, including short sellers who published a research report on fraud and money laundering in the company in February 2016.

Former Wirecard CEO Markus Braun is in jail awaiting trial for fraud while German police conduct an international search for another former executive, Jan Marsalek, who they accuse of “billions in fraud” and for that they have issued an arrest warrant.

“The federal government has stood by Wirecard. Scholz bears the political responsibility, ”said Bayaz.

Jens Zimmermann, a lawmaker of Scholz’s SPD party, said it was understandable that the officials were concerned about the stability of the financial sector in view of the possible failure of Lufthansa and Wirecard and held it responsible for examining all options.

Regarding lobbying, Wolfgang Schmidt, a close confidante and deputy of Scholz, told parliamentarians who investigated the collapse of Wirecard: “It is quite normal that the government regularly campaigns for the economic interests of German companies in other countries.”

“APPRECIATE YOUR SUPPORT”

The investigative legislators Bayaz and Hauer expressed concern that the state support for Wirecard continued even after the red flags were raised over the company.

In February 2019, the German financial supervisory authority BaFin informed the Ministry of Finance that it had ordered an investigation into Wirecard’s accounting, and in April BaFin imposed a fine of 1.5 million euros on Wirecard for failing to submit the financial accounts immediately.

On June 22, 2019, however, Schmidt took a call from a US-based consultant for Wirecard, Ulf Gartzke from the management consultancy Spitzberg. This emerges from the documents and statements made by Schmidt about the investigation in December last year.

The topic was “Project Heron” – Wirecard’s plans to take over the payment company Allscore in China, which had to be approved by the Chinese authorities. Gartzke asked Schmidt to contact Chinese officials about Wirecard’s plans.

Schmidt said in his testimony that he had asked Gartzke to write something for him in English. On the same day, Gartzke emailed Schmidt attaching a draft letter in English that was seen by Reuters.

“We would be delighted if you approved the above-mentioned initiative and hope that you can support Wirecard AG in their plans for entering the Chinese market,” says the draft.

Schmidt said in his testimony that he “reformulated” this post without elaborating on it and sent it to a Chinese official. Parliamentarian Hauer said he saw the last letter and it was “almost identical”.

Schmidt said this was part of the usual process of helping large companies overseas. Gartzke did not respond to a request for comment.

China’s Central Bank, Ministry of Foreign Affairs and State Council Information Office did not respond to requests for comment.

Wirecard announced an agreement to acquire Allscore in November of this year, although the deal wasn’t closed before Wirecard collapsed. Allscore could not be achieved for comment.

Graphic: Rise of Wirecard: The reported sales have increased over the years:

Additional reporting by Patricia Uhlig; Letter from John O’Donnell; Editing by Pravin Char

Original Source © Reuters

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