Wirecard's confirmation that €1.9 billion (Dh7.8bn) it had booked in its accounts likely never existed raises questions over whether the company is able to survive as a going concern or can be broken up and sold.
At a stroke, the acknowledgement wiped out a decade of reported cash flows and corroborated earlier reports that Wirecard relied on obscure third-party partners for much of its reported profits, according to financial analysts and forensic accountants.
Putting a value on Wirecard amounts to a complete stab in the dark, even if it does have customers and a technology platform that works, according to industry experts. For competitors, there is no compelling reason to scoop up any viable parts of Wirecard's operations because it would be easier to grab its customers, they said.
It is beyond salvageable in my view
"We are unable to quantify the true profile of the business with conviction," said Robert Lamb at Citi, who has suspended his target price for Wirecard stock.
Even if Wirecard can navigate the current turmoil, it will be hard to restore confidence, added Mr Lamb. That would require it to be rebranded and a new management team to be drafted in – both unlikely to happen soon, he said. The company replaced its chief executive last week with James Freis, an ex-compliance officer at Germany's stock exchange.
Moody's on Monday withdrew its rating on Wirecard – cut to junk only last Friday after chief executive Markus Braun quit – citing insufficient independently verifiable information.
Shares in Wirecard, a one-time German financial technology star, fell 39 per cent on Monday, bringing cumulative losses since Thursday to 85 per cent. Its only listed bond, due in 2024, was last bid down 9 cents on the euro at 26 cents.
In the absence of credible accounts, analysts look to cash. Here, an earlier hole of €1 billion found by KPMG in a special audit has grown to €1.9bn for 2019, according to in-house auditor EY, after balances reported in the Philippines were exposed as fictitious.
Neil Campling at Mirabaud Securities, the only analyst to have had a price target of zero for Wirecard, sees no way back. He sees the firm at imminent risk of having its licences revoked by Visa and MasterCard, whose payments it processes.
MasterCard declined to comment while Visa did not respond to a request for comment.
"They have no business if Visa and MasterCard revoke their licenses, which I expect to happen," Mr Campling told Reuters. "Customers, the few that are real, will seek alternative payment providers."
Mr Campling sees no equity break-up value due to the prior claims of debt holders and litigation risks. "It is beyond salvageable in my view," he said.
Richard Sbaschnig, a forensic accountant at CFRA, said it was in the interest of creditor banks not to force Wirecard into bankruptcy because that would destroy any residual value left in customer relationships and payment contracts.
"The banks could be better off giving the company more time and see if parts ... can be sold or operated profitably to repay them," he added.
The problem is that there are no obvious acquirers among Wirecard's competitors.
The banks could be better off giving the company more time ...
Dutch payments platform Adyen has a strong business among large corporates, but prefers to steer clear of the struggling airlines sector – a core clientele of Wirecard.
"We view Adyen as very well-positioned to capture existing Wirecard customers that could seek to leave Wirecard," said Julian Serafini at Jefferies, adding that Adyen has long preferred organic growth to acquisitions.
France's Worldline, meanwhile, would also be likely to find it easier to scoop up Wirecard customers in Europe, and would have little interest in Wirecard's Asian interests, analysts said.
A deal involving Italy-based rival Nexi would make little sense as it has no ambitions to expand abroad, they added.
Adyen declined to comment while Worldline and Nexi did not immediately respond to requests for comment.
The specs
Engine: Four electric motors, one at each wheel
Power: 579hp
Torque: 859Nm
Transmission: Single-speed automatic
Price: From Dh825,900
On sale: Now
Avatar: Fire and Ash
Director: James Cameron
Starring: Sam Worthington, Sigourney Weaver, Zoe Saldana
Rating: 4.5/5
Factfile on Garbine Muguruza:
Name: Garbine Muguruza (ESP)
World ranking: 15 (will rise to 5 on Monday)
Date of birth: October 8, 1993
Place of birth: Caracas, Venezuela
Place of residence: Geneva, Switzerland
Height: 6ft (1.82m)
Career singles titles: 4
Grand Slam titles: 2 (French Open 2016, Wimbledon 2017)
Career prize money: $13,928,719
Indoor Cricket World Cup Dubai 2017
Venue Insportz, Dubai; Admission Free
Day 1 fixtures (Saturday)
Men 1.45pm, Malaysia v Australia (Court 1); Singapore v India (Court 2); UAE v New Zealand (Court 3); South Africa v Sri Lanka (Court 4)
Women Noon, New Zealand v South Africa (Court 3); England v UAE (Court 4); 5.15pm, Australia v UAE (Court 3); England v New Zealand (Court 4)
UAE currency: the story behind the money in your pockets
Company Profile
Name: Thndr
Started: 2019
Co-founders: Ahmad Hammouda and Seif Amr
Sector: FinTech
Headquarters: Egypt
UAE base: Hub71, Abu Dhabi
Current number of staff: More than 150
Funds raised: $22 million
Libya's Gold
UN Panel of Experts found regime secretly sold a fifth of the country's gold reserves.
The panel’s 2017 report followed a trail to West Africa where large sums of cash and gold were hidden by Abdullah Al Senussi, Qaddafi’s former intelligence chief, in 2011.
Cases filled with cash that was said to amount to $560m in 100 dollar notes, that was kept by a group of Libyans in Ouagadougou, Burkina Faso.
A second stash was said to have been held in Accra, Ghana, inside boxes at the local offices of an international human rights organisation based in France.
COMPANY%20PROFILE
%3Cp%3E%3Cstrong%3ECompany%20name%3A%3C%2Fstrong%3E%20Silkhaus%3C%2Fp%3E%0A%3Cp%3E%3Cstrong%3EStarted%3A%3C%2Fstrong%3E%202021%3C%2Fp%3E%0A%3Cp%3E%3Cstrong%3EFounders%3A%3C%2Fstrong%3E%20Aahan%20Bhojani%20and%20Ashmin%20Varma%3C%2Fp%3E%0A%3Cp%3E%3Cstrong%3EBased%3A%3C%2Fstrong%3E%20Dubai%2C%20UAE%3C%2Fp%3E%0A%3Cp%3E%3Cstrong%3EIndustry%3A%3C%2Fstrong%3E%20Property%20technology%3C%2Fp%3E%0A%3Cp%3E%3Cstrong%3EFunding%3A%3C%2Fstrong%3E%20%247.75%20million%3C%2Fp%3E%0A%3Cp%3E%3Cstrong%3EInvestors%3A%3C%2Fstrong%3E%20Nuwa%20Capital%2C%20VentureSouq%2C%20Nordstar%2C%20Global%20Founders%20Capital%2C%20Yuj%20Ventures%20and%20Whiteboard%20Capital%3C%2Fp%3E%0A
The burning issue
The internal combustion engine is facing a watershed moment – major manufacturer Volvo is to stop producing petroleum-powered vehicles by 2021 and countries in Europe, including the UK, have vowed to ban their sale before 2040. The National takes a look at the story of one of the most successful technologies of the last 100 years and how it has impacted life in the UAE.
Read part four: an affection for classic cars lives on
Read part three: the age of the electric vehicle begins
Read part one: how cars came to the UAE
Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
