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(Bloomberg) -- Germany’s financial watchdog shuttered Greensill Bank AG and asked law enforcement officials to investigate accounting irregularities at the lender, compounding the woes of its parent company as it seeks to stave off a collapse that it says could prompt corporate defaults and job losses.Regulator BaFin on Wednesday said it closed the Bremen-based lender for business after finding irregularities in how Greensill Bank booked assets tied to a key client of Greensill Capital, British industrialist Sanjeev Gupta. A spokesman for the prosecutors confirmed that the regulator filed a criminal complaint, without elaborating.“During a special forensic audit, BaFin found that Greensill Bank AG was unable to provide evidence of the existence of receivables in its balance sheet that it had purchased from the GFG Alliance Group,” BaFin said in a statement. Gupta’s GFG invests in and revamps moribund steel and power plants and has been an early backer and client of Greensill’s firm.Lex Greensill has seen his supply chain finance empire rapidly unravel this week as investors cut ties with him over concerns about the creditworthiness of his borrowers and a key insurer backed out of covering Greensill-backed companies. Bond and Credit Company, a unit of Japanese insurer Tokio Marine Holding, decided not to renew insurance policies covering $4.6 billion in corporate loans backed by the financier’s firm. The policies were due to lapse on March 1, prompting Greensill’s supply-chain firm to take the insurer to court in Australia, warning that losing coverage for its 40 or so clients could spark defaults and put 50,000 jobs at risk.But late on Monday, a judge in Sydney struck down Greensill’s injunction, leaving the firm fighting for its survival. Greensill Capital is planning to go ahead with an insolvency filing as it pursues a sale of the company, according to people familiar with the matter. It’s in talks with the combination of Athene Holding Ltd. and Apollo Global Management Inc. to sell its operating business, the people said.Greensill said in a statement late Wednesday that it had received “extensive advice,” from firms Noerr in Germany and Simmons & Simmons in the U.K., “which informed the way in which the assets were classified.” The company also said that it immediately complied after BaFin advised it late last year and early this year that it didn’t agree with its accounting.“Greensill Bank has at all times been transparent with its regulators and auditors about its approach to classifying assets and the methodologies for determining such classifications,” a spokesman for the company said by email. He added that BaFin’s announcement didn’t mention any criminal charges.Supply chain finance is a method of speeding up payments between companies. While it is a service widely offered by banks and other intermediaries, it can be misused to hide debt.One of the most serious findings of BaFin’s probe was that the bank booked claims for transactions that hadn’t yet occurred but which were accounted for as if they had, Bloomberg reported earlier Wednesday, citing people familiar with the matter. The questionable claims were related to companies associated with Gupta.Separately, the Bank of England asked Wyelands Bank, which is part of GFG Alliance, to repay its depositors, according to an emailed statement.BaFin increased its scrutiny of Bremen-based Greensill Bank, which provides funding to its parent and assumes some of its credit risk, since the middle of last year over its out-sized exposure to Gupta. Bloomberg reported earlier that the regulator was close to freezing payments in and out of the bank and had taken it under tight oversight to limit damage for depositors.Greensill’s effort to disrupt a niche part of global finance was derailed when credit insurance backing some of his firm’s loans lapsed, triggering uncertainty about their value and forcing Credit Suisse Group AG to freeze funds that bought the debt. The funds, along with Greensill Bank, were key buyers of the supply chain finance securities Greensill Capital issued.BaFin’s move on Greensill Bank comes after the regulator was the target of heavy criticism last year over its handling of the Wirecard AG scandal, where the watchdog was seen as slow to respond to allegations of wrongdoing. That electronic payments company, which collapsed in June, also relied on a German banking unit to fuel its growth, and had claimed assets on its balance sheet that didn’t exist.(Corrects to include company statement that legal advice informed the way assets were classified in sixth paragraph of story published on March 3.)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.
(Bloomberg) -- Wirecard AG continuously obstructed a special audit by accounting firm KPMG LLP, a probe that ended up uncovering fictitious bookings on a massive scale and hastened the collapse of the once high-flying German mobile payment company.Speaking at a parliamentary inquiry in Berlin on Thursday, KPMG partner Alexander Geschonnek laid out how his company was confronted with “considerable obstacles” in its task to unpack Wirecard’s accounts dating back several years.Interviews with key counterparts were routinely delayed or moved, and accounting probes couldn’t be fulfilled because the company didn’t provide the required data, Geschonnek said. As a result, KPMG struggled to fulfill its mandate, he said.“It proved impossible to sufficiently comprehend the transaction volumes from 2016 to 2018,” Geschonnek, who works at the KPMG Forensic division, told the inquiry in Berlin.KPMG billed Wirecard 5.8 million euros ($6.9 million) for the audit, but ended up receiving just 5.3 million euros, Geschonnek said. At one point, KPMG even considered aborting the task outright, which involved as many as 40 accountants during a six-month process, he said. ‘Surprised’The auditor’s account is a key part of an investigation trying to understand why Wirecard collapsed, and if the company’s alleged malfeasance could have been detected sooner. KPMG was brought on by Wirecard to do a special audit late last year, reviewing the accounts that had already been signed off by longterm auditor Ernst & Young.One episode that has drawn particular attention was a trip by auditors and company management earlier this year to Manila in the Philippines, where Wirecard said its partner companies held large sums of cash from transactions in escrow accounts. But in Geschonnek’s telling, employees at the local bank were unable to produce the requested documents, raising suspicions.By the time KPMG handed over its report, the auditor had concluded there was no evidence that funds in the escrow accounts in Asia actually existed, he said. Geschonnek said he was “surprised” how even after repeated requests, Wirecard failed to provide proof that the money allegedly sitting in the escrow accounts was there.Wirecard filed for insolvency in late June, after admitting that 1.9 billion euros in funds never existed. Former Chief Executive Officer Markus Braun was detained shortly thereafter and is in jail, while his No. 2, Chief Operating Officer Jan Marsalek, is on the run and now features on Interpol’s Most-Wanted list.Braun appeared in front of the parliamentary inquiry last week but largely refrained from answering questions beyond brief introductory comments. In that statement, he said regulators or auditors were likely “massively misled.”(adds detail on KPMG audit in fifth paragraph)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg Opinion) -- When Wirecard AG’s former boss Markus Braun was taken from his Bavarian prison last week to give testimony to a German parliamentary enquiry, he declined to answer almost all questions about the payment-processing group’s sudden collapse.Dressed in his trademark black turtleneck sweater, he did read a prepared statement which generously exonerated politicians, financial authorities and auditors for not spotting the epic fraud. “I can’t understand why external regulators should be held responsible for failures here,” he said.Braun has good reason to play nice with German authorities: After 1.9 billion euros ($2.3 billion) of Wirecard cash balances disappeared (they may never have existed), prosecutors are investigating whether he knew that profits were fabricated and that prettified accounts were used to obtain billions of euros in funding. He denies wrongdoing.Investors who lost their shirts when Wirecard collapsed will be less forgiving of Germany. Confidence in the country’s capital markets has been shattered by the affair, which exposed alarming gaps in its regulatory and accounting oversight. Germany’s opposition politicians can be commended for insisting on a rigorous parliamentary inquiry, but there’s little sign that top officials are ready to accept blame.Regrettably, the detective work was left to courageous financial journalists at the Financial Times, whom Germany tried to hinder by investigating claims that they’d conspired with short sellers. German financial regulator BaFin also banned investors from shorting Wirecard stock, even though hedge fund instincts were proved correct. Wirecard’s chief operating officer, Jan Marsalek, believed by Germany authorities to be an informant for Austria’s spy agency, has eluded Berlin’s efforts to find him.Germany’s latest effort to make amends — an overhaul of the rules governing admission to the country’s blue-chip Dax share index — is a step in the right direction.Companies that fail to promptly issue audited financial statements will be swiftly booted from the index, which is being expanded from 30 to 40 constituents. They’ll be required to have an independent audit committee. Wirecard’s supervisory board didn’t establish an audit committee until 2019. Meanwhile, Berlin is preparing an overhaul of BaFin’s powers. Bizarrely, Wirecard didn’t fall under the finance regulator’s oversight (except for its banking arm) because it was considered a technology company. Dozens of BaFin employees traded Wirecard stock while the company was facing questions about its accounting. There’s no suggestion they acted on insider information, but this was a cavalier attitude toward conflicts of interest. BaFin staff will be banned from trading securities in the companies it oversees. It’s incredible that it was ever allowed. Germany’s accounting watchdog, FREP, which lacked the resources to conduct a forensic investigation of Wirecard, will have its contract cancelled, with BaFin gaining greater powers on forensic audits.BaFin’s president, Felix Hufeld, has largely ducked responsibility for Wirecard and pointed the finger instead at auditor, EY, whose staff appear at Germany’s parliamentary inquiry this week. (Like Braun, they’re expected to remain largely silent.) In a long report on Wirecard this month, the European Securities and Markets Authority said BaFin lacks independence from its government.All of this tells me that Germany hasn’t fully come to terms with what happened, and international investors will continue to regard its financial regulators as docile and toothless.The country has form. A decade ago, Volkswagen AG briefly became the world’s most valuable company when Porsche revealed it had cornered the market in its parent company’s shares using financial derivatives that it wasn’t obliged to reveal under German rules. This brought about a massive squeeze on short sellers and inflicted billions of dollars of losses on hedge funds, after a Bernstein analyst exposed what Porsche was probably up to. Investors remain bitter to this day.On Wirecard, financial journalists did Germany’s supervisory work for it. Dan McCrum and his FT colleague Stefania Palma have been nominated for the Federal Cross of Merit, Germany’s highest civilian honor, but there’s been no apology from BaFin. My guess is it may never arrive.This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Chris Bryant is a Bloomberg Opinion columnist covering industrial companies. He previously worked for the Financial Times.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.