9.95 0.00 (0.00%)
After hours: 4:49PM EDT
|Bid||9.89 x 38500|
|Ask||10.00 x 21500|
|Day's range||9.88 - 10.07|
|52-week range||4.99 - 11.16|
|Beta (5Y monthly)||1.61|
|PE ratio (TTM)||N/A|
|Forward dividend & yield||N/A (N/A)|
|Ex-dividend date||19 May 2017|
|1y target est||6.19|
(Bloomberg Opinion) -- Cerberus Capital Management LP has gone for the jugular. The New York private equity firm has been pushing Commerzbank AG to ramp up its cost cutting because of its dismal profit prospects and a share-price slump, and its campaign has prompted the departure of both the German lender’s chairman and its chief executive officer.However, a leadership vacuum in the midst of the worst recession in living memory isn’t ideal. While a fresh management vision will deepen Commerzbank’s restructuring plans, the search for suitable successors will delay the overhaul.Other investors, including the German government, are also eager to put the bank on a track toward sustainable profitability. But there’s a limit on how far cost reductions can help. Germany is a notoriously over-banked market, so there’s too much competition, and the country’s powerful labor unions were already opposed to the departing Commerzbank CEO’s existing job-cutting plans. First, there’s the succession to deal with. Cerberus — owner of a 5% stake in Commerzbank — wants to replace Chairman Stefan Schmittmann first, before finding a successor to CEO Martin Zielke. The bank wants to do the opposite, according to Bloomberg News, preferring the quick appointment of an internal candidate as CEO because it doesn’t want to hold things up by waiting on a new chairman. Schmittmann leaves next month and a permanent chairman may need to come from outside the bank given the lack of options on the supervisory board.That could draw out the management succession into late summer. But maybe this wouldn’t be such a terrible thing. The next couple of months should make clearer just how painful the Covid-19 recession has been for Commerzbank’s small and medium-sized company customers — the most prized part of its business. Pausing the restructuring until there’s more visibility has some merit.Letting a new chairman help choose the CEO would also allow the bank to cast a wider net. While there are several potential internal candidates to succeed Zielke, none appears to be a shoo-in. Roland Boekhout, the new head of corporate clients, is the leading internal candidate, according to Bloomberg News. His record at ING Groep NV’s German unit was impressive but he’s only been with Commerzbank since January. Another front runner, the finance director Bettina Orlopp, has been in her position since April.Zielke was in the middle of an overhaul that would have seen 7,000 more job cuts, on top of the 4,000 lined up last year. The execution of any cost reduction plan remains critical after the outgoing CEO failed to deliver on his financial targets. Labor representatives — which pushed back on Commerzbank’s merger attempt with Deutsche Bank AG last year and which control half the supervisory board — have vowed to fight the jobs plan.Commerzbank shares rose on Monday, but they still value the lender at just 22% of its tangible book, a sign of its frailty. For Cerberus, the visible results of its pressure will help show its backers that it’s not sitting idle. Zielke’s target for a 4% return on tangible equity was so unambitious that it drew criticism even from German banking regulators, so there’s no great sorrow about his departure. Worker representatives won’t be able to ignore the sense of urgency that the tumult at the top has brought to light. But, as I’ve argued before, making money in Germany’s commercial lending market while interest rates remain negative is a hard task. At some point, Commerzbank may draw fresh suitors. This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Elisa Martinuzzi is a Bloomberg Opinion columnist covering finance. She is a former managing editor for European finance at Bloomberg News.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.
Deutsche Bank is on the lookout for expansion opportunities in the area of payments systems, the lender's strategy director said in response to a question about the lender's interest in Wirecard's assets. "We are one of the largest banks in payment transactions worldwide ... So if there are opportunities here to strengthen ourselves, we will look into them," Deutsche's Fabrizio Campelli told Handelsblatt newspaper in an interview published on Friday.
(Bloomberg) -- In late 2018, as Deutsche Bank AG executives mulled the future of their troubled lender, Chairman Paul Achleitner encouraged them to emulate a payments firm that had become a wunderkind of German finance: Wirecard AG.The two companies were already close. Deutsche Bank was a key lender to Wirecard and its chief executive officer, Markus Braun, who also sat on one of its regional advisory boards. Andreas Loetscher, an Ernst & Young partner who had overseen several audits of Wirecard’s results, had recently joined Deutsche Bank as chief accounting officer. DWS, the bank’s asset-management unit, was a shareholder.Yet behind the scenes, doubts were growing whether the fintech’s success was for real. Deutsche Bank’s investment bankers argued its accounts were opaque and the stock overvalued, and risk managers sought ways to cut their exposure without rattling markets. Over the course of the following year, Deutsche Bank unwound or hedged most of some $300 million it had agreed to lend to Braun and his firm -- while its asset management arm kept piling in, an analyst upgraded the stock and its bankers helped the firm raise debt.This story of Deutsche Bank’s ties to Wirecard is based on accounts of people with direct knowledge of the events who spoke on condition of anonymity. It spotlights the complicated relationship of Germany’s financial elite with a company that was belittled at first, then admired and eventually bedeviled when it imploded in a spectacular accounting scandal last month. Now Deutsche Bank is coming full circle, considering a financial lifeline for parts of the firm that only last year approached it about an all-out merger.A spokesman for Deutsche Bank declined to comment on the lender’s ties to Wirecard.Wirecard’s StoryWirecard’s allure for the world of German finance is hard to overstate. Started as a payments provider to gaming and adult entertainment websites, it was the butt of jokes at first on the executive floors of some German lenders. Yet as the country’s financial industry struggled to adapt to tighter regulations and negative interest rates after the 2008 financial crisis, the startup from the suburbs of Munich somehow bucked the trend.Suddenly here was a young company that seemed to enjoy spectacular growth by applying technology to the plumbing of payments, and shareholders loved it. The company’s market value had exploded since the financial crisis, eclipsing 150-year-old Deutsche Bank. By late 2018, Wirecard replaced Commerzbank AG in Germany’s benchmark DAX Index.Achleitner, at the meeting in Hamburg in late 2018, asked why Deutsche Bank’s transaction bank wasn’t getting the same attention as Wirecard’s. He was looking to bolster Deutsche Bank’s own payment business after naming Christian Sewing CEO earlier that year -- an executive with extensive experience in corporate banking.Shortly after that meeting, in January 2019, the Financial Times published the first in a series of articles alleging accounting irregularities at a unit of Wirecard, sending the shares into a tailspin. The payments firm -- and even regulators -- brushed it off as the work of short sellers seeking a quick profit, but the FT stood by its reporting throughout.At Deutsche Bank, some executives grew alarmed, including Garth Ritchie, the head of investment banking at the time. Ritchie’s skepticism had arisen in part from conversations with hedge-fund clients that had conducted their own research into the firm’s workings, and who had been betting against the stock. His unit oversaw a 150 million-euro loan to Braun that was secured by Wirecard shares, so if the shares fell, the bank could lose a lot of money.Risk managers led by Stuart Lewis, Deutsche Bank’s chief risk officer, were also worried. The lender had agreed to provide around 120 million euros to Wirecard as part of that firm’s revolving credit facility, but the payments company was expanding very rapidly and Deutsche Bank didn’t fully understand all the factors at play. They reduced their exposure and increased their hedge in the wake of the FT story.Kirch LawsuitLewis also shared Ritchie’s concern about the margin loan to Braun. The debt was due for renewal at the end of 2019, but some traders wanted to get rid of it before. Yet doing so could send a message to markets that Germany’s largest lender had lost confidence in the company and might push Wirecard over the edge. Deutsche Bank itself would be at risk of another billion-dollar lawsuit like the one with the heirs of of Leo Kirch over the collapse of his media group, which dragged on for more than a decade until 2014.The allegations in the FT were weighing on Wirecard’s shares, but the company was still more valuable on the stock market than Deutsche Bank. And so, in the spring of last year, its executives were discussing an audacious step that would have given them a way out: a full-fledged merger with Deutsche Bank. They approached the Frankfurt lender, but the bank quickly ended the exploratory talks.Wirecard did score a victory around that time in efforts to restore market confidence. In April, SoftBank Group Corp., the Japanese telecommunications operator turned tech investor, agreed to put 900 million euros into the German company, giving a boost to the stock. Nooshin Nejati, an equity analyst at Deutsche Bank in Frankfurt, changed her rating on Wirecard to buy from hold the following month and predicted that its shares would soar about 40% to 200 euros within a year.Fund managers at DWS were also bullish on Wirecard. Over the course of the year, the firm increased its holding from less than 2 million shares to over 7 million. The biggest purchase came right after the Wirecard’s share price plunged more than a fifth in the span of a few days following another critical FT report. Stock pickers led by Tim Albrecht went all in.DWS and Albrecht declined to comment. The investment firm said last month it plans to file a lawsuit against Wirecard and Braun.Albrecht saw the October selloff as a chance to lock in big gains down the road, he said in a recent newspaper interview. His 4.1 billion-euro DWS Deutschland fund upped its stake by more than 3.5 million shares between September and December 2019, according to data compiled by Bloomberg and company filings. DWS Aktien Strategie Deutschland and DWS ESG Investa both more than doubled their holdings over the same period.Just as they piled in, executives in Deutsche Bank’s twin towers across the street from DWS made up their mind about Wirecard. Softbank, whose April announcement was seen as a sign of confidence in Wirecard, had since gotten cold feet and was setting up a complex transaction to sell off the investment and avoid putting up money itself.Deutsche Bank’s investment bankers had been offered, informally, a chance to help on the convertible bond Wirecard was planning to sell as part of the Softbank agreement, but they declined because they didn’t want the risk on their books. They did help Wirecard raise a separate, 500 million-euro bond in September, but that debt was sold on to other investors.By early November, Deutsche Bank’s risk managers decided that they wouldn’t renew the margin loan to Wirecard CEO Braun. They rolled over part of the debt and set up a repayment plan. Braun eventually got another loan, from Oldenburgische Landesbank, a small regional lender backed by private equity investors including Apollo Global Management, according to people familiar with the matter.When Wirecard spiraled toward insolvency this spring -- after admitting that more than $2 billion that it had claimed to have in assets probably didn’t exist -- the loan to CEO Braun was no longer on Deutsche Bank’s books. And while the firm is among a group of 15 lenders owed some 1.6 billion euros by Wirecard, its actual exposure is closer to 70 million euros, assuming the credit facility was 90% drawn down. By comparison, Commerzbank, ABN Amro Bank NV and ING Groep NV are each owed more than twice as much, Bloomberg has reported.But Deutsche Bank remains exposed on other fronts. DWS needs to explain losses from the investment to its clients. Loetscher, Deutsche Bank’s chief accountant, is the target of a criminal complaint for his role in Wirecard’s audits while he was working for E&Y.“There are many unresolved questions around Wirecard,” said Sebastian Kraemer-Bach, a spokesman for Deutsche Bank in Frankfurt. “We highly appreciate working with Andreas Loetscher,” he said, adding that the presumption of innocence applies. Loetscher declined to comment.Deutsche Bank is now considering buying Wirecard’s banking operations, which have been ringfenced from the rest of the payments company by BaFin, the German regulator. Options include taking on pieces of Wirecard Bank or the unit in its entirety, people familiar with the matter said, adding that the lender is still debating other ways to help Wirecard Bank and hasn’t made a final decision.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.
Germany’s Wirecard payments filed for insolvency last week after revelations of a €1.9bn hole in it balance sheet.
(Bloomberg Opinion) -- Deutsche Bank AG is lining up to buy a piece of history — a remnant of scandal-ridden Wirecard AG. It’s not the only one sniffing around. But however many expressions of interest there may be, and however credible the buyers, the proceeds from selling off even the best assets of the German payments company will be tiny relative to the losses incurred.When Wirecard was a stock market darling, investors weren’t piling into the shares because of its Wirecard Bank subsidiary, the piece that potentially interests Deutsche Bank. The lending arm was a sideshow as the rest of the operation appeared to expand. Of course, the growth reported by the group is now heavily in doubt following the admission that the accounts overstated cash balances by 1.9 billion euros ($2.1 billion).Deutsche Bank says it is considering providing financial support for Wirecard Bank should it be required. Precisely what that means is unclear. Wirecard’s bank is not subject to insolvency proceedings. If it needs assistance, there should be other avenues. It’s not Deutsche Bank’s job to be lender of last resort. But there could be some logic to a straight takeover at the right price.Extreme due diligence will be critical. Wirecard Bank has looked like a simple deposit-taking institution that’s been growing nicely. Question one is whether its 1.7 billion euros of deposits have stayed put as the parent company has unraveled. Then any buyer would need to kick the tires on the credit quality of the assets.And however much comfort Deutsche Bank got, this would be a tiny transaction. Even prior to Wirecard’s spectacular implosion, the unit’s book value was around 160 million euros. Credit quality will need to be robust to justify paying that.At least Wirecard’s creditors’ expectations are low. The group’s loans and bonds are trading at around 17% of face value, suggesting their owners expect to collectively get back around 400 million euros of the 2.3 billion euros they are owed (assuming Wirecard drew down all its revolving credit line in full). A jumbo convertible bond is being quoted even lower. That’s backed by Wirecard but issued out of a separate entity, creating doubt as to whether its holders’ claims would rank as highly as those of other creditors.It will take several years to adjudicate claims, so the expectation must be that recoveries will be slightly higher — but not much.Aside from the bank, the other asset likely to attract interest is Wirecard’s U.S. business, put up for sale earlier this week. This was acquired from Citigroup Inc. in 2017. The price wasn’t given, but Wirecard did reveal an associated $200 million foreign-exchange transaction for the purposes of the deal. It also said the acquisition would add $20 million to Ebitda. Take that as a base and assume a 10-15 times valuation multiple and an exit might raise $200-$300 million, according to Mirabaud Securities analyst Neil Campling.As for the remaining businesses, investors need to be optimistic to believe they are worth much. One explanation for the missing billions is that most of Wirecard’s operations have been loss-making for some time, and so never generated the free cash flow that was reported. Value them at, say, 100 million euros for the customer relationships and some tangible assets. Tot it all up and you can see why hopes are so faint. The one other source of compensation would be generated from claims against the company and its directors, falling back on insurance.Wirecard’s administrator says there are “numerous interested parties” for the company’s assets. Who wouldn’t want to nose around the books of this infamous fallen technology star? But beware of thinking that Deutsche Bank, or anyone else, will truly come to the rescue.This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Chris Hughes is a Bloomberg Opinion columnist covering deals. He previously worked for Reuters Breakingviews, as well as the Financial Times and the Independent newspaper.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.
(Bloomberg) -- Deutsche Bank AG is weighing the acquisition of all or part of disgraced Wirecard AG’s bank, potentially throwing the business a lifeline after one of the biggest corporate scandals in recent years.The Frankfurt-based lender is in touch with regulator BaFin, Wirecard Bank’s management board and administrators on possible further steps to help Wirecard’s finance unit, a Deutsche Bank spokesman said by e-mail, without elaborating. Options include taking on pieces of Wirecard Bank or the unit in its entirety, people familiar with the matter said, adding that the lender is still debating other ways to help Wirecard Bank and hasn’t made a final decision.Deutsche Bank had informal tie-up talks with the scandal-hit fintech last Spring, though it quickly broke off the preliminary discussions. Wirecard Bank -- which sat at the heart of the firm -- could be valuable to a potential acquirer because of its relationship with credit card companies Visa Inc., Mastercard Inc. and JCB International, which are also key to other parts of Wirecard.Deutsche Bank may also be hit if Wirecard Bank were to file for insolvency. Germany’s deposit insurance scheme for private banks would have to make depositors whole if the lender didn’t have enough funds of its own to repay them. That could lead to higher contributions from the scheme members, of which Deutsche Bank is the biggest and highest paying.Wirecard filed for insolvency last week after saying that almost 2 billion euros ($2.25 billion) it previously reported as cash probably never existed, throwing the future of its banking and others businesses into doubt. The company faces a potential avalanche of lawsuits and former Chief Executive Officer Markus Braun was arrested, though he is now out on bail.While Wirecard Bank isn’t part of the bankruptcy proceedings, the parent ceded control of funds last week after the financial regulator stepped in to prevent the money from being deployed elsewhere.“We are currently reviewing the possibility of providing Wirecard Bank AG with financial support,” Deutsche Bank said. “We are in principle prepared to provide this support in the context of a continuation of business operations, if such assistance should become necessary.”Insolvency administrator Michael Jaffe said on Wednesday that the assets he’s trying to sell are attracting interest from numerous investors. He didn’t say whether he intends to sell Wirecard Bank as well, though said the lender remains solvent.To fuel its growth, Wirecard had been paying depositors attractive interest at a time when traditional banks increasingly started to pass on negative rates. This year, it began offering a 0.75% interest rate via its Boon app, betting that more deposits will translate into more payments via its systems and lucrative contracts with stores and online merchants.In addition to the earlier talks on a possible tie-up, the two financial firms had others links. Deutsche Bank is part of a lending group of 15 banks that together are owed about 1.6 billion euros, Bloomberg has reported. CEO Christian Sewing has been trying to shift the lender away from its reliance on trading income toward a focus on processing payments for companies, and he’s made the division responsible for the business -- known as Corporate Bank -- the centerpiece of his large restructuring plan.Sewing has focused tech investment on the Corporate Bank but he has also said that the division is being challenged by the low interest-rate environment it’s operating in.The collapse of Wirecard has prompted criticism of regulators and soul-searching among Germany’s elite grappling for answers over the failure of what was once one of its most lauded companies. BaFin President Felix Hufeld has acknowledged that his institution is among those to blame for not catching the irregularities, which he referred to as “massive fraud” on Thursday in Frankfurt.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) -- The brief, controversial alliance between SoftBank Group Corp. and Wirecard AG is nearing a close with the unwinding of both a marketing partnership and financial instruments behind a 900 million-euro ($1 billion) investment last year.Complex securities used to offload SoftBank’s risk on its Wirecard investment last year are going to be unwound after the German payments company’s collapse triggered a liquidation of the notes’ underlying collateral, according to a notice sent to investors Wednesday that was seen by Bloomberg. The notes were backed by Wirecard convertible bonds, which will now be sold off in a process overseen by Credit Suisse Group AG.The repackaged securities were issued to institutional investors in October 2019 through a deal arranged by Credit Suisse. The Wirecard convertible bonds backing the notes will be offloaded through a modified Dutch auction set to take place around July 8, Wednesday’s notice shows.Wirecard and SoftBank announced a strategic partnership in April last year that was seen as a vote of confidence in the troubled German company, which had been fending off accusations about its accounting for more than a decade. As part of the deal, SoftBank agreed to invest 900 million euros through a five-year convertible bond.Read more: How German Fintech Darling Wirecard Fell From Grace: QuickTakeStock SurgeThe deal did much to support a run-up of about 20% in the German payments processor over the next several months. By September 2019, the stock reached 150 euros apiece, well above the convertible bond strike price. The notes were issued with an annual coupon of 1.9% and could be converted into Wirecard shares if they hit a strike price of 130 euros, terms seen as favorable to the Japanese investment firm.In order to take some of its profit on Wirecard’s rally, without diluting the German firm’s shares or signaling to the market a loss of faith, Credit Suisse arranged the sale of 900 million euros worth of notes exchangeable into Wirecard shares through special purpose vehicle Argentum Netherlands BV, using the original convertible bond as collateral and allowing SoftBank an early payout on its investment.Read more: Deutsche Bank Weighs Aiding Bank Unit of Scandal-Torn WirecardThe securities were designed to protect the SoftBank group from Wirecard’s credit risk while still leaving room to benefit from the upside, according to a person familiar with the matter. In the end, the group booked a profit at the time of the conversion, but there was no additional profit, the person said, asking not to be identified because the information is private.Missing CashThere’s also been no activity on SoftBank’s marketing agreement with Wirecard since October after further revelations of suspect accounting activities appeared in the press, the person said. The investor had made a number of introductions between Wirecard and its portfolio companies, some of which resulted in memorandums of understanding about potential collaboration, the person said, asking not to be identified because the decision was private.A representative for SoftBank declined to comment on the company’s relationship with Wirecard. Wirecard has said it’s not making further statements to the press at the moment and didn’t immediately respond to a request for comment.Wirecard applied for protection from creditors after investigations revealed that 1.9 billion euros previously reported as cash was missing from its accounts and probably never existed. On Monday, a Munich court appointed Michael Jaffe as its preliminary insolvency administrator.Wirecard’s shares dropped 33% to 3.21 euros at 4:18 p.m. in Frankfurt trading. The stock has declined about 97% this year.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) -- A growing list of Facebook Inc.’s advertisers is set to halt spending on social media, undermining the company’s sales outlook and putting its stock price under further pressure.Starbucks Corp., Levi Strauss & Co., PepsiCo Inc. and Diageo Plc were among the most recent companies to say they’re curtailing ad spending, part of an exodus aimed at pushing Facebook and its peers to suppress posts that glorify violence, divide and disinform the public, and promote racism and discrimination.No single company can significantly dent growth at Facebook, which generated $17.7 billion in revenue last quarter alone. But a rising tally adds to pressure on other brands to follow suit, and when combined with a pandemic-fueled economic slowdown, the threat to Facebook deepens.“Given the amount of noise this is drawing, this will have significant impact to Facebook’s business,” Wedbush Securities analyst Bradley Gastwirth wrote in a research note. “Facebook needs to address this issue quickly and effectively in order to stop advertising exits from potentially spiraling out of control.”As more brands publicize plans to join boycotts or otherwise rein in ad spending, Facebook shares remain under pressure. The stock tumbled 8.3% Friday after Unilever, one of the world’s largest advertisers, said it would halt spending on Facebook properties this year, eliminating $56 billion in market value and shaving the net worth of Chief Executive Officer Mark Zuckerberg by more than $7 billion. Shares closed at $216.08 Friday after reaching a record $242.24 the preceding Tuesday.Facebook was already bracing for weakness in the second quarter, which ends this week. Chief Financial Officer Dave Wehner noted in an April earnings call the “potential for an even more severe advertising industry contraction.”The number of coronavirus cases has surged in the intervening months, prompting many parts of the country to slow or roll-back reopening efforts and giving advertisers added justification to rein in marketing spending. Facebook will eke out 1% revenue growth in the June period, followed by a 7% increase in the third quarter, according to analysts’ current projections, by far the smallest quarterly growth increases since the company went public.Starbucks said Sunday that it would pause spending on all social media platforms while it carries out talks internally, with media partners and civil rights groups “in the effort to stop the spread of hate speech.”Trump PostsWhile some companies are targeting social media generally, including Twitter Inc., many are singling out Facebook specifically. Zuckerberg has been more reticent to put limits on discourse, notably controversial posts by U.S. President Donald Trump, saying that he doesn’t want Facebook to be an arbiter of what’s true.That’s prompted a consortium of civil rights and other advocacy groups, including Color of Change and the Anti-Defamation League, to urge advertisers to stop spending on Facebook-owned platforms for July to protest the company’s policies.Zuckerberg responded Friday to the growing criticism, saying that Facebook would label all voting-related posts with a link encouraging users to look at its new voter information hub. The social network also expanded its definition of prohibited hate speech for advertising.“We understand people want to put pressure on Facebook to do more,” Facebook vice president Nick Clegg said Sunday on CNN’s Reliable Sources. “That’s why we made those additional announcements in Friday. That’s why we’ll continue to redouble our efforts, because, you know, we have a zero tolerance approach to hate speech.”The Anti-Defamation League called the changes “small.”The stampede of advertisers, combined with lobbying from civil rights groups, leaves Zuckerberg in a bind. He could take further steps to curtail harmful content, but that risks alienating free-speech advocates and supporters of Trump who have argued that Facebook is censoring political discourse and suppressing conservative voices.Distinct ExodusHe could also stand pat on a bet that this advertising pause will be short-lived, as have social media ad boycotts in the past. But this exodus as distinct, Bernstein Securities analyst Mark Shmulik wrote in a research note Saturday. There’s heightened pressure to publicly demonstrate that brands stand with civil rights groups, he said. “The current environment is very different,” Shmulik wrote. “It is very visible who is and isn’t participating in the boycott where brand silence [equals] being complicit.”Will Zuckerberg budge? While major brands like Unilever and Coca-Cola have garnered most of the headlines, the vast majority of Facebook’s 8 million advertisers are small businesses, many of which rely heavily on Facebook advertising for sales. Some in the ad industry don’t believe that these businesses, particularly those in commerce and direct-to-consumer sales, can actually afford to halt spending.“Pulling off for a whole month would really hurt their business,” Deutsche Bank analyst Lloyd Walmsley said earlier this week. “It’s a lot to ask for.”In its outreach to advertisers last week, Facebook has said it doesn’t intend to make decisions based on sales. “We have been consistent that we do not make policy changes tied to revenue pressure,” Facebook said on Wednesday in a memo obtained by Bloomberg News. “We set our policies based on principles rather than business interests.”Whatever additional moves Facebook makes, there’s reason to believe the departure of advertisers won’t end soon. “Advertisers who have seen their own ads published against hateful, horrible content on Facebook -- racist, anti-Semitic poison -- they are finally saying ‘enough’,” Jonathan Greenblatt, CEO of the Anti-Defamation League, said Friday in an interview with Bloomberg Television. “Our phones have been ringing off the hook with advertisers. I can tell you more are coming.”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) -- Deutsche Bank AG’s top accounting executive, Andreas Loetscher, and two ex-colleagues at his former firm Ernst & Young were targeted in a criminal complaint by a German retail investor association for their alleged role in the accounting scandal at Wirecard AG.The SdK association filed the claim against two unnnamed current partners of EY -- which also audits Deutsche Bank’s accounts -- and one former partner because of “the events around Wirecard,” according to a statement on Friday. That ex-partner is Loetscher, a person familiar with the matter said.Loetscher, a two-decade veteran at the accounting firm, oversaw the Wirecard audits for the financial years 2015 through 2017, filings show. He left in 2018 to become chief accounting officer at Deutsche Bank, taking over after the bank struggled for years with legal and regulatory mishaps.”There are many unresolved questions around Wirecard,” Deutsche Bank said in a statement. “We highly appreciate working with Andreas Loetscher.” The principle of presumption of innocence applies, the bank also said. Loetscher declined to comment through a spokesman and EY declined to comment on the complaint.Prosecutors now have to review the complaint and decide whether the facts warrant a criminal investigation. They can also use evidence collected as part of a probe into Wirecard itself.‘Worrisome Case’Wirecard filed for insolvency Thursday, the culmination of a stunning accounting scandal that led to the arrest of its former CEO and the revelation that over $2 billion on its balance sheet likely didn’t exist. The scandal has prompted questions about the the role of the auditors and Germany’s financial regulator.Wirecard is a “a worrisome case,” Steffen Seibert, the spokesman for German Chancellor Angela Merkel, said during a news conference on Friday. The reaction by authorities now is “about preventing damage to Germany as a financial industry location,” he said.EY accused their client of “an elaborate and sophisticated fraud” that allowed more than $2 billion to go missing. The firm finally sounded the alarm last week, when they refused to sign off on Wirecard’s 2019 financial report.Loetscher is just one link between Wirecard and Deutsche Bank.Germany’s largest lender has loaned money to both Wirecard and Braun and it also served as global coordinator on the company’s bond issue last year. The bank also led on its share sale in 2014. DWS, Deutsche Bank’s asset-management unit, was briefly one of Wirecard’s biggest shareholders earlier this year.Braun has served one of the bank’s regional advisory boards.Wirecard even toyed with a tie-up with Deutsche Bank and approached the lender with the idea, people familiar with the matter previously said.Read more: Wirecard Said to Have Explored Deutsche Bank Tie-Up in 2019(Adds German government remarks in seventh paragraph and clarifies Deutsche Bank comment in fourth)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) -- The scandal at Wirecard AG hasn’t just exposed a multi-billion dollar hole in the accounts of one of Germany’s most hyped fintech companies. It has also revealed a void at the heart of the country’s regulatory regime.Angela Merkel’s government needs to ask itself some tough questions about the effectiveness of BaFin as a watchdog for its financial markets, including whether it should continue in its present form. But this is a European problem too.The supervisory failures are so bad that the European Union is complaining about the possible damage to its own reputation as a safe place to invest. Brussels will rightly open an investigation into the Wirecard fiasco. One hopes that this will accelerate the process toward a stronger pan-European regulatory body that might overcome the tendency for national supervisors to go easy on their domestic companies.The European Securities Markets Authority, the EU’s market regulator, needs to be given a central role in governing the continent’s companies, as has already happened with the European Central Bank’s oversight of banking. The ECB hasn’t been a perfect supervisor: It could have put more pressure on Deutsche Bank AG, Germany’s struggling flagship lender. But it has done a better job than BaFin, which failed to adequately monitor the German banking system before the financial crisis.Wirecard’s collapse is certainly a humiliation for Germany’s supervisors. A number of short sellers, and a group of Financial Times journalists, have for years been reporting disturbing facts about the company and, in particular, the reliability of its accounts. BaFin failed to follow up speedily on their work, despite receiving tips from a whistleblower and complaints from other regulatory authorities. Instead, it pointed the finger the other way: banning the short selling of Wirecard stock temporarily and opening an investigation into the FT’s reporters.Even after the company admitted that it couldn’t locate 1.9 billion euros ($2.1 billion) of cash, the German establishment was slow to acknowledge the gravity of the situation. Felix Hufeld, the head of BaFin, issued an apology, but he also said Wirecard was considered a technology company rather than a financial institution — a bizarre attempt to defect blame given that Wirecard owned its own bank. Olaf Scholz, Germany’s finance minister, initially said that “the supervisory institutions worked very hard and they did their job.” He has since changed tack, demanding a rethink of Germany’s regulatory structure. BaFin’s problems are structural and cultural. It is overseen by Germany’s finance ministry, meaning it lacks independence from political meddling. It may have also struggled to understand the world of fintech: Wirecard’s byzantine payment-transfers business was difficult for outsiders to make sense of. But shouldn’t that have raised its own concerns? The EU is right to be putting the heat on Germany. Valdis Dombrovskis, the vice-president in charge of financial services, said in an FT interview on Friday that ESMA should lead a probe into BaFin’s behavior. The Commission could follow up with its own formal investigation. Provided these inquiries have teeth, they would show that even Germany is not beyond EU scrutiny.The Commission should also accelerate plans to overhaul ESMA. At the moment, it is little more than a collection of national regulators, with no real powers of its own. Unsurprisingly, it failed to pick up what was happening in Germany. The Wirecard probe will be a key test of its independence. BaFin executives sit on the ESMA supervisory board.A stronger, centralized markets regulator might even help deliver some EU states’ dream of a “capital markets union.” This aims to create a true pan-European equity market, and it would be a crucial step to strengthening the bloc’s financial stability. A single markets regulator would doubtless have its failings. It would be subject to national lobbying, especially if its executives weren’t independent enough. There would still be problems in how to oversee companies that operate in multiple jurisdictions beyond Europe. Still, a strong pan-European watchdog would have more muscle to deal with international counterparts.Much like the financial crisis exposed the cozy links between lenders and banking supervisors, the Wirecard scandal is a reminder of what’s wrong with the balkanized regulation of the securities markets. The EU should seize on this opportunity — and Germany should not get in the way.This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Ferdinando Giugliano writes columns and editorials on European economics for Bloomberg View. He is also an economics columnist for La Repubblica and was a member of the editorial board of 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.
(Bloomberg) -- A number of major apparel brands have promised to pull advertising money from Facebook Inc. as part of a coordinated campaign to pressure the social-media giant to crack down on hate speech and misinformation amid nationwide civil-rights protests and the lead-up to the 2020 U.S. presidential election.Civil rights groups, including the NAACP, the Anti-Defamation League and Color of Change, launched the campaign last week, asking marketers to boycott Facebook ads for the month of July, an effort they’re calling Stop Hate for Profit. The group says that Facebook, which brings in almost all of its revenue from advertising, makes money off user posts that include hate speech, racism and misinformation.A few large marketers were quick to jump on board. Outdoor apparel brand The North Face, owned by CF Corp., on June 19 tweeted “we’re out,” and confirmed to Bloomberg that it has pulled ad spending for both the main Facebook social network and its photo-sharing app Instagram until August. Recreational Equipment Inc., known as REI, which also sells sporting gear, and Upwork Inc., an online marketplace for freelancers, joined the boycott that afternoon. On June 21, Patagonia Inc. also pledged an advertising pause. On Tuesday, outdoor outfitter Arc’teryx said it would halt Facebook spending at least until the end of July, followed closely by popular ice cream maker Ben & Jerry's Homemade Inc., part of Unilever NV.The six companies have more than 19 million combined Facebook followers, and more than 13 million on Instagram. Still, many small businesses, which make up the bulk of Facebook’s advertisers, likely can’t afford to pause spending on the social network, their main online outpost for reaching local customers—a sign of the company’s strength in the digital ad market.“We deeply respect any brand’s decision, and remain focused on the important work of removing hate speech and providing critical voting information,” said Carolyn Everson, vice president of Facebook’s Global Business Group.For years, Facebook has been the target of politicians and nonprofit groups seeking to challenge the company’s power over user data and speech content. Despite previous ad boycott efforts, and a deletefacebook trend online in early 2018, Facebook’s revenue and user growth numbers have never been seriously impacted by user or advertiser protests. Since 2016, when Facebook’s policies became the center of debate following foreign interference efforts during the U.S. election, the social network’s revenue has jumped by 150% to more than $70 billion in 2019.It’s possible the latest boycott will be the first to gain any real traction. Civil rights protests erupted in hundreds of cities across the country last month following the death of an unarmed Black man, George Floyd, at the hands of Minneapolis police officers. Many companies, including Facebook, have donated money and issued statements of support for racial justice groups. Juneteenth, the holiday celebrating the formal end of slavery in the U.S., was adopted widely as a corporate holiday by many companies for the first time this year.“It’s obviously a cultural moment of pain,” said Steve Lesnard, VP of marketing at The North Face, who said the company made the decision in “hopes that Facebook will provide stricter rules.” But support of the boycott also signals support for groups that started it, like the NAACP. “We believe that normal is not good enough and we all need to drive positive change immediately,” Lesnard added.Civil Rights groups have taken issue with Facebook for years. The Menlo Park, California-based social network enabled voter suppression efforts against African Americans in 2016, they say, and then named The Daily Caller, a right-wing outlet with ties to white nationalism, as one of its formal fact-checking partners. Most recently, Facebook left up posts from President Donald Trump threatening protesters that “when the looting starts, the shooting starts,” a phrase with ties to a pro-segregation presidential candidate.Employees at Color of Change, a civil rights nonprofit helping lead the boycott, have phone calls set up with advertisers throughout this week in hopes of encouraging them to halt spending. “It’s not the time for statements of support that are just ‘Black Lives Matter’ and don’t come with real change,” said Jade Magnus Ogunnaike, the group’s senior campaigns director. “Now it’s time to change rules and behaviors.”It’s unclear how much money any of the brands that committed to the boycott actually spend on Facebook advertising — for many national brands, Facebook ads are just a fraction of their overall marketing budgets — or if others will join them in holding back. While more large companies may pause spending, many small businesses, which make up the majority of Facebook advertisers, may not have that luxury. Shutting down Facebook advertising for a month, even for a cause they believe in, would pose a serious threat to online commerce brands in particular, many of which rely on Facebook ads to drive the bulk of their sales, according to multiple ad buyers. Almost 76% of Facebook’s advertising revenue comes from small- and medium-sized businesses — the kind that are unlikely to be in a position to spend a month off the platform — according to research from Deutsche Bank. “They’re in the trenches, and they’re trying to hit their numbers,” said Terry Whalen, president of the digital marketing agency Sum Digital, which works with smaller e-commerce and direct-to-consumer brands. “If you talk about boycotting Facebook, to me that sounds like a fantastic idea to send a message. But for a whole month? That’s just too ambitious.”Many smaller media buyers like Whalen – the kind who spend tens of millions of dollars per year on Facebook ads instead of hundreds of millions — first heard about the boycott from Facebook itself. The company sent its media partners an email last week acknowledging the boycott, and highlighting much of the work Facebook is doing around identifying hate speech using algorithms and defending election integrity, including a new goal to register 4 million voters ahead of the 2020 U.S. general election. “We remain open to meeting with any of these organizations and welcome feedback on the issues they have raised,” the email read.Barry Hott, VP of growth at a software company for driving website sales called Thesis, manages over $4 million in Facebook ad spending per month. He agrees that for many of his clients, Facebook is too valuable to give up. “A huge stream of their revenue is unfortunately tied directly to [Facebook] ads,” he said. “None of these clients can afford to do that.”The dependence on Facebook has been part of a broader industry discussion in recent years about the immense power of major technology companies. Facebook alone accounts for 23.4% of the entire U.S. digital advertising market, according to EMarketer, and more than 50% of the market is controlled by Facebook and Alphabet Inc.’s Google. Not coincidentally, numerous U.S. regulators are investigating the tech industry’s largest companies for antitrust reasons.Facebook investors, meanwhile, don’t seem concerned that some big brands are throwing their names and their dollars behind the boycott. Deutsche Bank’s Lloyd Walmsley, an analyst covering Facebook, said that while he’s heard from many advertisers worried about marketing on social media given the current environment surrounding the protests, he doesn’t anticipate Facebook suffering any kind of long-term business harm. “Looking beyond the very short term, I think this will end up being a speed bump,” he says. Facebook stock closed Tuesday at $242.24 a share, an all-time high.“I don’t suspect that a month-long call to boycott is going to be successful,” said Whalen. “Facebook is too important.”(Updates to include boycott announcement from Ben and Jerry’s in third 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) -- It’s understandable that, after four years of Donald Trump’s voluminous corruption, fatigue has settled across the land. It’s less understandable that the Army of the Exhausted includes the chairman of the House Judiciary Committee. On Sunday, Judiciary Committee chairman Jerry Nadler was asked about the latest effort by Attorney General William Barr to fix a problem for the president. Over the weekend, Barr had clumsily fired Geoffrey Berman, the U.S. attorney for the Southern District of New York. Berman’s office had investigated Trump’s personal lawyer, Michael Cohen, who had admitted to felonies including a campaign-finance violation that federal prosecutors said was committed at the direction of “Individual-1” — that is, Trump. So Berman, a Republican who contributed to Trump’s 2016 campaign, has already officially logged one Trump felony. In addition, Berman’s office has been investigating Trump’s other personal attorney, Rudolph Giuliani, as well as Trump’s bank, Deutsche Bank, and Trump’s inaugural committee.Nadler acknowledged the obvious. On top of Barr’s gross distortion of the Mueller report and other dodgy efforts, Nadler cited a “pattern” of Barr “corruptly impeding” investigations, as Barr did in the cases of Trump’s former national security adviser, Michael Flynn, and Trump friend and self-avowed political dirty trickster Roger Stone. Barr’s attack on Berman — Barr at first falsely claimed Berman had resigned — is “just more of the same,” Nadler said.It sounds pretty bad. Yet given Senate Republicans’ refusal to address corruption, Nadler said, calls for impeaching the attorney general are “a waste of time.”Nadler is hardly alone in believing the nation’s chief law enforcement officer is corrupt. Berman’s predecessor, Preet Bharara, a Democrat, and former Deputy Assistant Secretary of Homeland Security Paul Rosenzweig, a Republican, are just a few of those who concur.Nadler has not abandoned oversight of the Justice Department altogether. His committee has scheduled a hearing this week on the politicization of the department under Barr. But foreclosing the possibility of impeachment, regardless of the Senate’s corruption, looks like another instance of enabling an authoritarian encroachment of the federal government. There are at least four reasons to rethink this.First, Barr’s conduct, which includes his aggressive clearing of protesters exercising First Amendment rights of speech and assembly in Washington’s Lafayette Square, to enable a presidential photo op, clearly invites impeachment. Yet Barr has received little scrutiny in Congress because Republicans won’t allow it in the Senate, and Barr, in another authoritarian move, has refused to accept House oversight. Investigations and hearings produce witnesses and information. Trump’s shakedown of Ukraine was “widely understood” at the top levels of government, according to former national security adviser John Bolton. Yet without a flurry of House subpoenas in the impeachment investigation, the public might never have known the details and ramifications. To get information, it helps to have a structured, legally sanctioned means of obtaining it. Second, Barr has shown he wants his lawless cake and respectability, too. The attorney general probably doesn’t realize how fully he has already lost this battle. But his outrages are often accompanied by leaks about his misgivings. For example, the New York Times reported that Barr’s service as a prop at Trump’s now infamous Bible photo op made Barr “uncomfortable, according to two people told of those conversations.”An aggressive House investigation, punctuated by public hearings, can be useful in keeping Barr on the defensive and keeping his authoritarian urges in check. This will be more important as the election nears and Barr faces potential decisions about voter suppression, foreign election sabotage and other tactics designed to aid Trump’s campaign. Third, given the level of corruption already visible, there may well be a need to pursue criminal cases against Trump enablers after the election, provided Trump is removed from office. It would be better to lay out evidence for such cases before the election. To pursue them afterward, without having previously established an evidence trail, may look to some voters as dangerous opportunism.Finally, sometimes you have to do the right thing and let the chips fall. For political reasons, Democrats have resisted an aggressive pursuit of justice. Current polls suggest they navigated the politics correctly. Swing voters likely won’t pay much attention to corruption, and aren’t eager for the out-party to dwell on it. Trump is losing support as a result of his failure to deal with coronavirus and its economic fallout. A sizable majority of voters grasps that he is dishonest. Why mess with a trend line that currently points toward Democratic victory in November?Because if you support the rule of law, you have to act like you support the rule of law and be seen supporting the rule of law. That means coming to its defense when it’s under attack — as it is. This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Francis Wilkinson writes editorials on politics and U.S. domestic policy for Bloomberg Opinion. He was executive editor of the Week. He was previously a writer for Rolling Stone, a communications consultant and a political media strategist.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.
(Bloomberg Opinion) -- The spectacular blowup of German fintech darling Wirecard AG, which has seen $12 billion wiped off its market value in three days, is making some old-school bankers feel good about themselves.“When will we wake up to what a fintech really is?” Daniel Baal, the head of French cooperative bank Credit Mutuel, tweeted over the weekend. When questioned why his company seemed so proud of its own forays into the field, Baal shot back that its homegrown unit wasn’t overvalued or overexposed in the media, but was part of a “solid,” regulated banking group.This unseemly bit of corporate rubber-necking is pretty ironic, considering the recent history of banking losses borne by the taxpayer. Wirecard even toyed with merging with a flagging Deutsche Bank AG, according to my colleagues at Bloomberg News, but the German investment bank thankfully dodged that bullet.It’s also tempting to argue Wirecard isn’t emblematic of fintech anyway. Industry insiders say they’ve long been confused about the mismatch between the German firm’s DAX blue-chip status and its lack of presence on the ground bidding for clients. Wirecard’s bombshell revelation of a $2 billion hole in its bank account has little to do with technology and potentially a lot to do with dodgy accounting, as a series of Financial Times articles over the past year had already pointed out.But Baal’s barb shouldn’t be dismissed entirely. The enthusiastic groupthink that carried Wirecard into the DAX index in 2018 and valued it at 80 times earnings was inextricably linked to investors’ faith in the broader fintech story.Digital payments is a business that’s meant to be easy to understand, less risky than banking and an entree into the booming market for e-commerce and mobile transactions. It has allowed investors to shun the complexity of bank balance sheets and give them a taste of Silicon Valley valuation multiples. For example, Adyen NV, which went public in 2018, trades at a price-to-earnings ratio of 187 (twice that of Netflix Inc.). The Amsterdam-based company is seen as a winner from Wirecard’s woes because it solves so many problems for e-commerce firms, from combining different payments platforms to data analytics.Yet Wirecard shows the dangers of these types of companies falling between the regulatory cracks. Despite superficially being about moving money from point A to point B for a fee, investors and regulators seem to have been blind to what Wirecard’s digital payments business really involves and the risks it carries. None more so than the head of Germany’s national financial regulator Bafin, Felix Hufeld. At a press conference on Tuesday he actually said Wirecard was a “technology” firm as opposed to a financial one directly supervised by his institution. Wirecard says it has a full German banking licence. It’s a revealing slip of the tongue considering what went wrong on his watch.Less risky clearly doesn’t mean risk free. Technology banker Victor Basta of Magister Advisors points out that the fintech industry combines a model of utility-like financial plumbing with a lean approach to compliance. The pressure to grow can discourage firms from taking a stringent approach to checking money flows for potential illicit activity, and from implementing other controls.There are also hidden complexities in the business. Garen Markarian, chair of financial accounting at the Otto Beisheim School of Management, gives the theoretical example of someone buying a KLM airline ticket in Vietnam: A Wirecard partner might collect the money, transfer it to a foreign-exchange firm for a currency conversion, hand it to Wirecard to pass on to KLM for a fee and take a cut itself. This isn’t quantum physics, but it introduces execution risk. If internal controls aren’t strong, money can be lost. This isn’t to say that all fintech firms are somehow on a slippery slope leading to a $2 billion cash hole. But start-ups are incentivized to focus on growth rather than compliance. Money-transfer app Revolut, valued at $5.5 billion, has had its own run-ins with regulators over internal risk controls. It has responded by hiring former bankers to join its management and compliance teams. If Wirecard were to disappear tomorrow, the payments sector would shrug it off. But given how critical payments are, and the apparent risks, it would be worth considering whether the current balance is tilted too far toward low-cost efficiency and high-speed growth. It may be a good moment to reflect on how to make payments boring again.This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Lionel Laurent is a Bloomberg Opinion columnist covering Brussels. He previously worked at Reuters and Forbes.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.
(Bloomberg) -- Wirecard AG was left fighting for survival after acknowledging that 1.9 billion euros ($2.1 billion) that it had reported as assets probably don’t exist, deepening an accounting scandal that has rattled Germany’s financial industry.The payments processor said it’s in discussions with creditors and considering a full-scale restructuring after pulling its financial results for fiscal 2019 and the first quarter of 2020. Previous descriptions of its business with third parties, which process transactions on Wirecard’s behalf, were “not correct.”Even before the early Monday statement, the unfolding scandal had seen Wirecard’s shares and bonds collapse, its chief executive depart, and left the company renegotiating debt terms with its lenders. In less than a week, the fintech once hyped as the future of German finance has lost almost 90% of its market value, with the shares slumping for a third trading day on Monday.“It’s a complete disaster we’re looking at,” said Felix Hufeld, head of BaFin, Germany’s top financial regulator, at a panel discussion Monday. “It’s a shame that something like that happened.”Wirecard said it was in “constructive discussions” with its lending banks, including the extension of lines coming due at the end of June. It is working with investment bank Houlihan Lokey on a sustainable financing strategy. Also under consideration are cost reductions, a restructuring, and disposal or termination of business units and product segments, according to the statement.“There is a prevailing likelihood that the bank trust account balances in the amount of 1.9 billion euros do not exist,” Wirecard said. The firm had repeatedly delayed announcing its financial statements, and last week warned that loans of as much as 2 billion euros could be terminated if its audited annual report wasn’t published by June 19.Cracks are already appearing among Wirecard’s lenders. Bank of China Ltd. may write off most of the 80 million euros ($90 million) it’s owed and not extend its credit line, according to people familiar with the situation.Moody’s Investors Service decided on Monday to withdraw Wirecard’s credit ratings because it “believes it has insufficient or otherwise inadequate information to support the maintenance of the ratings.” It had already cut the ratings six levels on Friday, putting it one step from the lowest tier of junk.Read more on how Wirecard became an embarrassment for GermanyWirecard fell as much as 50% and traded 38% lower at 12:35 p.m. in Frankfurt. The stock has lost 85% since Wednesday, the day before it revealed that the funds were missing.Wirecard’s lenders are demanding more clarity from the company in return for the extension of almost $2 billion in financing after it breached terms on the loan, people familiar with the matter said earlier. At least 15 commercial lenders, including Commerzbank AG and ABN Amro, are in hectic negotiations about the steps to take, they said.The missing cash “could trigger an event of default and allow creditors to withdraw lines of credit,” said Justin Tang, head of Asian research at United First Partners in Singapore.Wirecard has an outstanding revolving credit facility of 1.75 billion euros, according to data compiled by Bloomberg. About 90% of the RCF has been drawn by the company, according to people familiar with the matter and a list detailing the facility’s participation that was seen by Bloomberg:It’s unclear how the latest admissions will affect discussions with the banks. Most are leaning toward an extension of the repayment obligation in order to better assess the potential impact of a default on their balance sheets, one of the people said. However, a prolonged extension could be seen as delaying an insolvency, which is illegal under German law.The scandal has prompted the resignation of Markus Braun after almost two decades as CEO. He was replaced on an interim basis by James Freis. Braun is unwinding a large portion of the shares he owns in the company, a stake he financed by borrowing against the stock’s value, Bloomberg has reported.Read more on how Braun has to unwind pledged sharesThe deepening mystery over the lost money centered on two Philippine lenders, after Wirecard said a couple of unnamed Asian banks had been unable to find accounts with the cash.Both the Bank of the Philippine Islands and BDO Unibank Inc. said Wirecard wasn’t a client and they hadn’t seen the money. None of the missing cash entered the Philippine financial system, according to the nation’s central bank, which is conducting its own investigation.A document purporting to show a link between Wirecard and BPI was “bogus” and may be part of an attempted fraud, the bank’s President Cezar Consing said Friday. BDO Unibank CEO Nestor Tan said it was a matter of “document fraud which was subsequently clarified by the bank as spurious.”Wirecard is continuing to investigate the matter and can’t rule out potential effects on the financial accounts of previous years, it said in Monday’s statement.(Updated with ninth paragraph, new table.)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) -- James Freis took charge of Wirecard AG on Friday following the shock announcement that Markus Braun had resigned as chief executive officer. The question he faces on Monday is what, if anything, he will be able to salvage of the payment company.Braun’s position became untenable following revelations that about 1.9 billion euros ($2.1 billion) -- or two-thirds of the company’s 2019 revenue -- had gone missing. The two Asian banks that were supposed to be holding the money denied any business relationship with Wirecard and the company subsequently withdrew its fiscal 2019 and first-quarter 2020 financial results after saying those funds on its balance sheet probably don’t exist.The chaos has shaved about 85% off Wirecard’s market value over just three trading days. As interim CEO, Freis has to convince investors that the collapse isn’t terminal.He has some relevant experience. He began his career as an attorney at the Federal Reserve Bank of New York. After a spell as director of the U.S. Treasury Department’s Financial Crimes Enforcement Network, where he was responsible for the regulation of financial institutions, he spent 6 years at Deutsche Boerse AG, most recently as chief compliance officer.Freis wasn’t meant to start at Wirecard until July. He also wasn’t meant to be running the company -- last week, he was supposed to be getting ready to run a new department called “Integrity, Legal and Compliance.” Now, his first priority will be to work closely with the company’s lenders, who are demanding more clarity in return for the extension of almost $2 billion in financing after Wirecard breached terms on the loan. At least 15 commercial lenders, including Commerzbank AG and ABN Amro, are in negotiations about the next steps.Wirecard said it’s in “constructive talks” with its lenders, and has hired investment bank Houlihan Lokey Inc. to come up with a financing strategy. However, a prolonged extension of Wirecard’s repayment obligation could be seen as delaying insolvency, which is illegal under German law.In Braun’s parting note on Friday he said the “confidence of the capital market in the company I have been managing for 18 years has been deeply shaken.” He added that responsibility for all business transactions lies with the CEO.Now Freis will need to build up that confidence to halt a share price that went into free fall -- the stock was down 36% at 10:58 a.m. in Frankfurt trading. Long-term investors have cut their stakes in Wirecard, while Deutsche Bank AG’s asset manager DWS said it will file a lawsuit against both Wirecard and Braun, a company spokesman said on Friday.The price of credit swaps on Wirecard indicate 82% odds of default by Christmas and 96% likelihood over five years, according to ICE Data Services on Friday, while Moody’s Investors Service cut Wirecard’s credit ratings six levels, putting it one step from the lowest tier of junk.Wirecard is also facing multiple investigations by local prosecutors and BaFin, the German financial regulator. One of Freis’ tasks will be to clarify with regulators what happened to the missing cash and what the implications will be to Wirecard’s balance sheet.The problem has been compounded after Philippine central bank Governor Benjamin Diokno told reporters on Sunday that none of the missing money entered the Philippine financial system, after two of its major lenders denied holding funds for the German payments processor.The company has also been forced to reassure customers that it is business as normal at its banking arm. Wirecard started offering a digital wallet called boon Planet in 2019. The app, similar to Paypal, was advertised in January this year with an attractive yield for account balances. While it is unclear how much money customers deposited at the app, the company sent out a message on Saturday reassuring its clients that their deposits are protected by a German state guarantee fund.German politicians are now taking aim at Wirecard, once seen as proof that Germany could build a fintech giant to take on U.S. rivals.“BaFin started its investigations early on, but sadly that couldn’t prevent the striking losses for investors,” said Florian Toncar, a German lawmaker from the opposition Free Democrats. “It would be very good to see BaFin use the tools at its disposal to quickly provide investors with clarity.”Freis posted his job update on LinkedIn shortly after the announcement. One contact responded that it sounds like “one heck of a turn around project” but that Wirecard has found the right guy to restore credibility. In a reply, Freis quipped that the “one upside...is that I never have to worry about finding a beer when I need one at the end of the day.”(Updates with share price in eighth paragraph, additional context.)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) -- Wirecard AG’s former boss Markus Braun is unwinding a large portion of the shares he owns in the embattled payments processor, a stake he financed by borrowing against the stock’s value, according to a person familiar with the matter.Former Chief Executive Officer Braun, who held 7% of Wirecard’s shares to rank as the company’s biggest shareholder, had funded his purchase through a 150 million-euro margin loan that was secured by the value of the underlying stock. Wirecard’s shares plunged 72% last week after billions in cash went missing, triggering a liquidation of the shares Braun had pledged as collateral, the person said, asking not to be identified because the information hasn’t been publicly disclosed.Named CEO in 2002, Braun has put tens of millions of euros of his own funds into the firm and owned 8.7 million shares of Wirecard as of June 19, according to data compiled by Bloomberg. In late 2017, Braun secured a loan by pledging 4.2 million shares, or just under half of his personal stake, a regulatory filing shows. The original loan 150 million-euro loan was provided by Deutsche Bank AG, which has since gotten rid of the loan, according to people familiar with the matter.Braun declined to comment, as did a spokesman for Deutsche Bank.Wirecard, once heralded as the future of Germany’s finance industry, abruptly fell from grace after accusations about the company’s accounting culminated in a disclosure that it was unable to locate 1.9 billion euros ($2.1 billion), or about a quarter of its balance sheet. It subsequently withdrew its fiscal 2019 and first-quarter 2020 financial results after saying those funds on its balance sheet doesn’t exist.The stock collapsed, Braun resigned and the company is facing a cash crunch as loans of as much as 2 billion come due.The plunge means that the pledged collateral is now worth far less than when Braun acquired the margin loan. The shares used by Braun to secure the loan from Deutsche Bank were worth 392 million euros on the day he pledged them back in 2017. After last week’s dramatic selloff, that value decreased to just 108 million euros at the end of trading on Friday.Read more: Wirecard Creditors Seek More Clarity Amid Talks Over Debt Margin loans are a common financing tool among the rich as they allow them to raise money from share holdings without actually selling them. Banks that make such loans frequently sell that exposure, sometimes shortly after signing them, in order to reduce the amount of risk on their balance sheets.Read more: What’s Next for Wirecard Debt in Balance-Sheet CrisisDeutsche Bank is also one of 15 banks in a group of lenders to Wirecard. Those banks now have the legal right to terminate the loan known as revolving credit facility because Wirecard breached conditions known as covenants when it failed to publish the annual report on Friday. The involved banks are currently trying to extract other concessions from Wirecard such as heightened transparency to avoid a default that would hit them too, Bloomberg has reported.An announcement on the negotiations between Wirecard and its lenders could happen as early as next week, Bloomberg has also reported.Deutsche Bank has gotten rid of at least some of the exposure from that RCF by putting it in a security known as collateralized loan obligation or CLO and selling it to other investors, other people familiar with the matter said.(Updates to add that Wirecard withdrew its recent financial results 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) -- As the U.S. Attorney in Manhattan, Geoffrey Berman sat atop one of the most powerful and independent perches in federal law enforcement. His office has long held dominion over the most significant white-collar crime cases in the country. It has taken on terrorists and organized crime. And sometimes it has investigated or prosecuted people close to the president of the United States.Berman’s team took down President Donald Trump’s personal lawyer, Michael Cohen, in 2018 on charges of tax evasion, bank fraud and campaign finance violations involving hush money payments to two women who said they had sexual encounters with the president. More recently, Berman has been investigating Rudolph Giuliani, a ubiquitous Trump lawyer and apologist, for possibly violating lobbying laws related to work he’s done in Ukraine. (That’s the same Ukraine that Trump tried to strong-arm into smearing former Vice President Joe Biden, leading to Trump’s impeachment; Berman’s office has already indicted two Giuliani associates, Lev Parnas and Igor Fruman, as part of that.)Berman’s office has also been investigating whether Deutsche Bank AG complied with laws meant to stop money laundering. Deutsche Bank has longstanding financial ties to Trump and the family of his son-in-law, Jared Kushner. I’ve detailed Trump’s links to the bank previously, here and here. Berman has subpoenaed Trump’s inaugural committee as part of a probe into how the incoming president’s team spent more than $106 million raised for his inauguration. And John Bolton’s forthcoming book contends that Trump promised Turkey’s president, Recep Erdogan, that he would block investigations into a Turkish state-owned bank, Halkbank. You guessed it; Berman’s office is investigating Halkbank, too.And so it came to pass that Attorney General William Barr fired Berman on Saturday afternoon, acting, he said, on Trump’s orders. Per the usual carnivalesque doings in Trumplandia, Berman was fired after refusing to resign after Barr announced, incorrectly, late Friday that Berman was “stepping down.”To his credit, Berman stood his ground, initially saying he wasn’t going anywhere because the Senate had not appointed his successor and he had to look after his office’s investigations. To his discredit, Barr noted in the letter he wrote canning Berman that he was “surprised and disappointed” that Berman had “chosen public spectacle over public service.”Barr has been around awhile. He surely knows that when someone like Berman learns of his dismissal from a press release distributed into the media’s equivalent of a black hole — late on a Friday night — and the release misrepresents Berman’s understanding of the facts, well, Berman might be unlikely to just play ball.Barr also surely knows that Berman’s investigations all involve sensitive matters touching Trump, and whatever legitimate reasons he might claim to have for helping Trump remove Berman, the atmospherics are beyond bad. The presidential election is less than five months away and cynics like me can be forgiven for thinking that this looks exactly like a housecleaning. Democrats in Congress think so, too, and are already scheduling hearings and calling for investigations.Trump has chosen Jay Clayton, chairman of the Securities and Exchange Commission, to replace Berman. Clayton has never served as a federal prosecutor. Before heading the SEC, he practiced corporate law in the private sector. One of his clients was Deutsche Bank. Trump and Barr may insist that Clayton’s resume and client list are irrelevant, but, of course, they matter. Clayton faces hurdles getting the job anyhow because Senator Lindsey Graham, a Republican overseeing the Senate Judiciary Committee, said he would defer to New York’s senators, both Democrats, when considering who should succeed Berman.Although Barr told Berman that he had asked Trump to fire him, the law is somewhat murky on how much latitude the president has to fire a U.S. attorney. Barr, as is his wont, assumed the most expansive interpretation of presidential authority. The president himself went into bunker mode, however, when reporters asked him at the White House on Saturday if and why he fired Berman. “Well, that’s all up to the attorney general. Attorney General Barr is working on that,” Trump said, trying to distance himself from his administration’s latest dogfight. “That’s his department, not my department. But we have a very capable attorney general. So that’s really up to him. I’m not involved.” There’s scant reason to trust Barr’s take on matters of the law any more. He misrepresented the conclusions of Special Counsel Robert Mueller’s investigation into ties between Trump’s team and Russians trying to sabotage the 2016 election, saying Mueller found no evidence of collusion or obstruction of justice. He’s publicly savaged federal prosecutors who had ample reason to investigate Trump and then launched a witch hunt to discredit them. He’s tried to interfere with or undermine other high-profile cases involving Trump associates or appointees such as Roger Stone and Michael Flynn. His office soft-pedaled its investigation of Trump’s maneuvers in Ukraine. He supported the use of force to clear peaceful Black Lives Matter protesters from the streets outside the White House so Trump could pursue a photo op in front of a church — and then dissembled about it. In short, Barr has repeatedly turned his office and the Justice Department upside down to protect Trump from the consequences of his own actions. There’s little reason to believe that Berman’s firing doesn’t fit that pattern.Barr maintains an imperial view of the presidency and, for the most part, sees presidents as existing beyond the rule of law. He also thinks the U.S. suffers from a morality vacuum. Last October, he delivered a speech at Notre Dame Law School in which he emphasized the importance of religion in society. On his way toward blurring the separation of church and state, he also claimed an assault on religion was afoot in the U.S. – which, he said, not only threatened individual freedom but the need for a “transcendent moral order.”If Barr cares so much about morality, he could set an example by acting morally. Telling the truth and upholding the law would be a good start.My father, Arthur O’Brien, was a lawyer in Illinois. He once told me he always felt proud whenever clients signed documents he drafted without reading them closely. They trusted him that much. And I remember him asking me over a backyard grill in the summer of 1974, just after Richard Nixon resigned, if I understood how hard it would be for Nixon’s children to go through life answering for their father’s corruption. “Never do anything in your life that would make your kids ashamed to have your last name,” he told me.My father would have understood that Trump and Barr have no regard for basic truths about law, morality and honor, as the Berman episode shows. And he would have said that it’s time for them to answer for that and move on.This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Timothy L. O'Brien is a senior columnist for Bloomberg Opinion.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.
(Bloomberg) -- Attorney General William Barr’s sudden move to replace Geoffrey S. Berman, the chief federal prosecutor in New York, and Berman’s refusal to step down, sets up a showdown between two of the nation’s top law enforcement officials less than five months before the presidential election.Barr’s surprise statement, issued after 9 pm Friday night, said Berman was stepping down and would be replaced by Jay Clayton, chairman of the U.S. Securities and Exchange Commission, following confirmation by the Senate.Berman issued his own statement after 11 pm saying he’d received no notice the announcement was coming and that no intention of resigning.“I learned in a press release from the Attorney General tonight that I was ‘stepping down’ as United States Attorney. I have not resigned,” Berman’s said in the statement. “Our investigations will move forward without delay or interruption. I cherish every day that I work with the men and women of this office to pursue justice without fear or favor -- and intend to ensure that this Office’s important cases continue unimpeded.”Early Saturday, a DOJ official who wasn’t authorized to speak publicly said Barr wasn’t dissuaded by Berman’s pushback and planned to stick to his timeline -- installing an interim acting U.S. attorney on July 3, and seeking the Senate confirmation of his permanent replacement, extending the standoff.‘Sovereign District’The Manhattan U.S. attorney’s office is perhaps the nation’s most elite and storied law enforcement office, taking a leading role in prosecuting white-collar fraud on Wall Street, terrorist plots and attacks, political corruption and organized crime, among other things.It cracked down on insider trading in the aftermath of the 2008-2009 financial crisis, eroded the influence of the mafia in New York, and prosecuted state and federal politicians for self-dealing. The office is fiercely independent, frequently referred to as the “Sovereign District of New York.”But following the end of Robert Mueller’s investigation into Russian interference in the 2016 election, the New York office may have entered its trickiest phase, as the lead authority scrutinizing the conduct of the leader of the free world and his close associates.Line prosecutors in the office were initially wary of Berman, who served as a volunteer for President Donald Trump’s presidential transition team and who was installed in the post on an interim basis and never confirmed by the Senate (he was confirmed by the judges of the New York federal court in alternative process).But Berman, 60, has since won the admiration of prosecutors there for the work he’s overseen and his efforts to protect the office’s independence and integrity, especially amid ongoing chatter of political pressure from Washington.Trump hasn’t commented on Barr’s move so far. The president flies to Tulsa on Saturday for his first campaign rally in three months.Epstein and AndrewIn his ongoing investigation into the late Jeffrey Epstein’s sex crimes and those who enabled his behavior, Berman just this month publicly refuted a statement from Prince Andrew’s U.K. lawyers that he has repeatedly sought to talk to American investigators. In an extraordinary showdown, Berman issued his own statement that the prince has done nothing of the kind.Much remains unclear in the immediate aftermath of Barr’s move, including whether the attorney general has the authority to remove the U.S. attorney for Manhattan, and whether the office was moving forward with an investigation or prosecution that angered Barr or Trump.Since Trump took office, federal prosecutors in New York have pursued several investigations into the president, his companies, and people close to him. That includes the prosecution of Trump’s long-time onetime personal lawyer and “fixer” Michael Cohen, and a current investigation involving Trump ally Rudy Giuliani and efforts to secure political dirt in Ukraine on presidential rival Joe Biden.Deutsche BankThere has also been a long-running investigation into Deutsche Bank, a crucial financial backer of Trump’s companies. A forthcoming book by National Security Adviser John Bolton that’s dominated the news this week said Trump had previously sought to meddle with a case being pursued by the office.Before Friday’s announcement, Barr had asked Berman to step aside and offered him other roles in the Justice Department, including head of the Civil Division at main Justice, said a Justice Department official familiar with the matter who asked not to be named. Berman declined, the person said.Barr said in his statement at Berman would leave office July 3, and that the Manhattan office would be led on an interim basis by Craig Carpenito, currently the U.S. attorney for New Jersey.Clayton is a corporate lawyer with no background in criminal law, and Carpenito has never worked as a prosecutor in New York. The arrangement does not follow the typical pattern, in which the number-two prosecutor in the office serves in an acting capacity as U.S. attorney until a new chief prosecutor is confirmed.The dueling statements stunned people in legal and political circles and raised questions about the move, including from Preet Bharara, Berman’s predecessor, whom Trump fired in 2017 after he refused to quit.Jerrold Nadler, chairman of the House Judiciary Committee, which has oversight of the Justice Department and had a lead role in Trump’s impeachment, said on Twitter that he would invite Berman to testify at a hearing on June 24.SDNY was pursuing several probes of the president’s business and his inaugural committee. As well as its investigation into Giuliani, it has charged two of Giuliani’s associates. In his congressional testimony, Cohen, whose conviction on campaign finance violations and other charges was secured by SDNY prosecutors, said he was cooperating with them on matters he couldn’t discuss.In charging Cohen in late 2018, prosecutors said he acted at the direction of “Individual 1,” whom they didn’t identify. But Cohen later said that individual was Trump.Trump and ErdoganThe office has charged Turkey’s state-owned Halkbank with helping Iran evade sanctions on billions of dollars in oil funds. The bank has pleaded not guilty. According to Bolton’s forthcoming book, Trump in 2018 told Turkey’s President Recep Tayyip Erdogan at a Group of 20 meeting that he thought Halkbank “was totally innocent of violating U.S. Iran sanctions.”Bolton wrote that, “Trump then told Erdogan he would take care of things, explaining that the Southern District prosecutors were not his people, but were Obama people, a problem that would be fixed when they were replaced by his people.”Carpenito, 46, has led the U.S. attorney’s office in New Jersey since January 2018. After the Covid-19 pandemic began, Barr appointed him to lead a national task force to fight hoarding and price gouging of materials like personal protective equipment, face masks and ventilators. He previously worked as a federal prosecutor under Chris Christie, who led the office before serving as governor of New Jersey, helping to secure a high-profile accounting fraud conviction against Cendant Corp. Chairman Walter Forbes, who was sentenced to more than 12 years in prison.Clayton’s nomination could take weeks or months if there is opposition in the Senate, and may not even get acted on in the summer months leading into election season.“The whole thing stinks,” said Mimi Rocah, a former federal prosecutor in the office. “Firing a U.S. attorney that has been working on investigations surrounding the president suddenly, and then circumventing the U.S. Attorney’s people by putting in an outside U.S. Attorney raises alarm bells.”That appointment also raised questions for Dan Goldman, a former federal prosecutor from the U.S. attorney’s office in Manhattan who served as a House Intelligence Committee lawyer and grilled a dozen witnesses during the panel’s public impeachment hearings. He said on Twitter that what happened Friday wasn’t standard procedure.Clayton didn’t have an easy time during his 2017 confirmation hearing for SEC chairman in the Senate.Democratic Senators, including Sherrod Brown of Ohio and Elizabeth Warren of Massachusetts, repeatedly said Clayton’s Wall Street relationships were a worry. Before joining the SEC, Clayton was a partner in New York for the law firm Sullivan & Cromwell, representing some of the financial industry’s most well known banks and hedge funds, including Goldman Sachs Group Inc. and Pershing Square Capital Management.Warren on Saturday called the attempted ouster of Berman “a naked abuse of power.”According to a Justice Department official, Barr has known Clayton for years and holds him in high regard. Clayton was getting ready to leave the administration and go back to New York, the person said. He expressed interest in SDNY and the Attorney General thought it was a good idea, according to the official.On enforcement matters at the SEC, Clayton, a political independent, has been willing to penalize firms accused of wrongdoing over Republican objections. During his tenure, the agency has also rewritten conduct standards for brokers and taken steps to clamp down on fees that stock exchanges charge. An SEC spokesperson for Clayton didn’t immediately respond to e-mailed messages seeking comment.(An earlier version of this story corrected a quote from Bolton’s book.)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) -- Just a month ago, the chief executive officer of Wirecard AG boasted on Twitter that the future would still be bright for the digital payments company when “all the noise and dust settles.”At the time, Markus Braun was a paper billionaire. But over the course of a couple of days, the fintech veteran has been forced to step-down as CEO and seen the value of his stake dwindle after a two-day stock rout.Braun’s position at the German payments company became untenable after revelations on Thursday that about 1.9 billion euros ($2.1 billion) -- two-thirds of 2019 revenue and about a quarter of the firm’s consolidated balance sheet -- had gone missing. Two Asian banks that were supposed to be holding the money it denied any business relationship with Wirecard, raising fresh questions about the embattled company.After years of allegations of wrongdoing, Bruan was at the center of the controversy, with repeated assurances that Wirecard’s accounts were above the board, despite Wirecard headquarters being searched in early June by German prosecutors as part of a criminal probe involving the company’s senior management.The executive, who’s also the company’s largest shareholder, will now be replaced on an interim basis by James Freis, who was originally appointed in May to take the new role of chief compliance officer.Freis is stepping into an almost unprecedented situation. The interim CEO wasn’t supposed to join until July, when he was going to be responsible for a newly created department called “Integrity, Legal and Compliance.”Previously head of compliance at Deutsche Boerse AG, Fries held the position of director of the U.S. Treasury Department’s Financial Crimes Enforcement Network, where he was responsible for the regulation of financial institutions.He will need to act fast to restore trust and reassure creditors. Failure to publish audited results on Friday triggers the potential termination of up to 2 billion euros in loans. Wirecard said it is in “constructive” talks with its banks to continue credit lines and the further business relationship.“A change in management was warranted for some time and following yesterday’s events and the further decline in Wirecard shares today, we are not surprised that the CEO is stepping down,” said Sanjay Sakhrani, an analyst with Keefe, Bruyette & Woods. “There may be no quick fix.”The story of Wirecard’s woes trace back to Braun, who may have been too invested in the company, making him either unwilling or unable to see issues and take corrective measures.When Braun joined Wirecard in 2002, the payments company had a few dozen employees and in its early years serviced mainly clients active in online gambling and porn. The Austrian national since engineered a growth story by acquiring companies in the U.S. and Asia. Today, customers include Germany’s most successful soccer club Bayern Munich, French mobile phone carrier Orange SA and Swedish furniture giant Ikea.In September 2018, Wirecard replaced Commerzbank AG in Germany’s elite DAX index, making Braun a star of the country’s digital ambitions.“Markus Braun’s resignation was overdue,” said Danyal Bayaz, a lawmaker with Germany’s Greens. “Wirecard is not a small fintech, but a DAX member.”Unlike U.S. tech billionaires, Braun usually sports a suit instead of a hoodie, but generally shuns wearing a tie. He got a degree in computer science from the Technical University of Vienna and a doctorate in social and economic sciences. He worked as a management consultant at KPMG before joining Wirecard.Even after winning SoftBank Group Corp. as an investor in April last year, Braun had been unable to re-establish trust following a series of articles in early 2019 by the Financial Times about potential fraud. Despite aggressive denials and allegations of market manipulation leveled at the reporter, the company acknowledged irregularities following an independent investigation that had access only to limited information.Braun’s response to the latest crisis followed a similar pattern: downplay or dismiss the allegations, paint the company as a victim and attempt to switch over to business as usual.At 8:19 a.m. on Thursday -- a time when investors were nervously awaiting delayed 2019 financial results -- Wirecard posted on Twitter about how Chinese shopping trends were favoring its business model, sparking enraged comments as the stock collapse took shape hours later.The company was well aware of the issue at the time of the feel-good tweet. Chief Operating Officer Jan Marsalek, who has been temporarily suspended, had tried to get in touch with the two Asian banks and trustees over the past two days to recover the missing money, according to a person familiar with the matter.In the direct aftermath, Braun pointed the finger at everyone but himself.“It is currently unclear whether fraudulent transactions to the detriment of Wirecard AG have occurred,” he said in a statement on Thursday, adding that the company will file a complaint against unnamed persons. “It cannot be ruled out that Wirecard has been the victim in a substantial case of fraud,” he said later.Long-term investors criticized Braun for being too much of a “techie” -- big on vision but short on management expertise. They’ve noted that he was very loyal to employees and resisted firing people. Those characteristics could have made him too trusting to delve into compliance issues as many in charge of those areas have long histories with the CEO.Center stage is not where Braun says he’s comfortable. The computer scientist steers Wirecard from a suburban office park, a world away from the glittering urban towers that house most financial powerhouses. He calls himself shy -- his birthdate isn’t publicly known and the company only acknowledges him being born in Vienna in 1969 -- but there’s more than a hint of false modesty.He aggressively pushed the company’s expansion, executing numerous takeovers of smaller and at times intransparent operators. And he wasn’t bashful about trumping up Wirecard’s success.“It can make you stronger and more robust if you focus on the positive and manage to make something positive from negative energy,” he told Bloomberg in an interview in September 2018 with the company at its peak. “Whenever you stick your head out, some people will like it and some won’t.”A year later at banking conference in Frankfurt, the bravado was still there despite months of turmoil over accounting concerns. Sitting on stage alongside, his counterpart at Deutsche Bank AG -- a lynch pin of the German economy and a company will versed in crises -- the moderator asked both men what it meant that Wirecard’s share price was above Deutsch Bank’s, Braun replied: “It means we are both undervalued.”(Updated with additional context.)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) -- Markus Braun’s almost two decades as Wirecard AG’s chief executive officer ended after accusations about the company’s accounting culminated in a shock disclosure that it was unable to locate 1.9 billion euros ($2.1 billion).James Freis has been appointed interim CEO, the German payments company said in a short statement Friday. A recent hire and former compliance executive at Deutsche Boerse AG, Freis was only named as a member of the management board on Thursday.Braun’s exit comes after a catastrophic few days for Wirecard, which suffered a share price collapse after the two Asian banks that were alleged to be holding the missing cash denied any business relationship with the company.Read More: Germany’s Fintech Star Falls on Failure to Clean Up WirecardWirecard is now facing a potential cash crunch. The company warned Thursday that loans of as much as 2 billion euros could be terminated if its audited annual report is not published on Friday. Analysts at Morgan Stanley estimated that Wirecard has available cash of around 220 million euros if it cannot locate the missing $2.1 billion.Wirecard’s lenders are considering hiring outside help as they seek to navigate the risk of a potentially massive default, a person familiar with the matter said.Named CEO in 2002, Braun has put tens of millions of euros of his own funds into the firm. The value of his stake, which once made him a paper billionaire, has dwindled in the course of the rout.His replacement is stepping into an almost unprecedented situation. Freis wasn’t supposed to join until July, when he was going to be responsible for a newly created department called “Integrity, Legal and Compliance.”Freis was previously head of compliance at Deutsche Boerse AG, and held the position of Director of the U.S. Treasury Department’s Financial Crimes Enforcement Network, where he was responsible for the regulation of financial institutions.The interim CEO will need to quickly reassure Wirecard’s business partners. Wirecard has licenses with Visa, Mastercard and JCB International, through which Wirecard’s banking arm issues its credit cards. If Wirecard is unable to find its missing cash, Visa and Mastercard may have cause to revoke the licenses.“The big question is whether they retain the Visa and Mastercard licenses,” Neil Campling, analyst at Mirabaud said. “Without those they have no business.”Mastercard said it is following the developments at Wirecard but did not want to comment on specific customer conversations or situations. Visa did not have an immediate comment.Missing CashWirecard claimed on Thursday that auditor Ernst & Young couldn’t confirm the location of the missing cash that was supposed to be held at two Asian banks and reported that “spurious balance confirmations” had been provided.The confusion deepened on Friday when BDO Unibank Inc., the Philippines’ largest bank by assets, and the Bank of the Philippine Islands, said on Friday that Wirecard isn’t a client.“It was a rogue employee who falsified documents and forged the signatures of our officers,” BDO Unibank CEO Nestor Tan said in a mobile phone message. “Wirecard is not even a depositor -- we have no relationship with them.”A document purporting to show a link between Wirecard and the Bank of the Philippine Islands was “bogus” and may be part of an attempted fraud, the president of the Southeast Asian lender said in a phone interview.Wirecard shares plunged as much as 52% in Frankfurt on Friday. The selloff in Wirecard’s bonds also intensified, with the company’s 500 million-euro bonds maturing in 2024 falling a further 14 cents to trade at 24 cents. Its 900 million euros of convertible bonds are now indicated at less than 10 cents on the euro.Wirecard was worth 24.6 billion euros in September 2018 when it entered Germany’s Dax index, and widely considered as one of Germany’s few successful fintech stories. It was valued at about 2.4 billion euros on Friday morning.Wirecard spokespeople did not return calls and emails for comment.Historic SlumpWirecard’s reversal of fortune has caught its supporters off guard. Some of the company’s most loyal shareholders are now dumping their stakes as allegations of accounting impropriety engulf the German payments company. Analysts are also quickly changing their recommendations, despite continued concerns about the company’s accounting.As of Wednesday, 10 out of 25 analysts tracked by Bloomberg recommended buying the stock. Since then, at least nine analysts have removed their recommendations and three have downgraded the stock to sell.German financial markets regulator BaFin said it is also examining Wirecard’s disclosure on Thursday as part of its investigation into whether the company violated rules against market manipulation, according to a spokeswoman.BaFin has three investigations of Wirecard running: whether the company manipulated markets with its disclosures, whether Braun’s stock purchase ahead of the planned publication of the company’s annual report violated market abuse roles and whether the company and its management are fit to be the owners of a bank.Fraud ClaimsBraun has previously painted the company as a potential victim, resisting calls to resign and aggressively defending Wirecard against accusations of accounting fraud, led by a series of articles in the Financial Times.“It cannot be ruled out that Wirecard has been the victim in a substantial case of fraud,” Braun said in a statement published overnight.The company temporarily suspended its outgoing Chief Operating Officer Jan Marsalek, it said in a statement late Thursday. Marsalek -- who has been suspended on a revocable basis until June 30 -- had tried to get in touch with the two Asian banks and trustees over the past two days to recover the missing money, but wasn’t successful, a person familiar with the matter said Thursday. It’s unclear if the funds can be recovered, the person added.German politicians are now asking how such a rapid collapse could happen to a fintech company that was once worth more than Deutsche Bank, and previously supported by local regulators. Early last year BaFin took the unprecedented step of temporarily banning short sales of Wirecard shares following reports of suspicious accounting practices.“Markus Braun’s resignation was overdue,” said Danyal Bayaz, a lawmaker with Germany’s Greens. “Wirecard is not a small fintech, but a DAX member.”(Updates with statement from Visa and the Bank of the Philippine Islands.)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.
Deutsche Bank (DB) settles two enforcement matters with the CFTC. The reduced penalty amount reflects the bank's cooperation in the investigation.
(Bloomberg) -- Wirecard AG has temporarily suspended its outgoing chief operating officer after revealing that auditors couldn’t find about 1.9 billion euros ($2.1 billion) in cash, spooking investors and casting doubt on the company’s leadership and survival.Jan Marsalek has been suspended on a revocable basis until June 30, the company said in a statement on Thursday. James Freis, who had already been tapped to lead the company’s new “integrity, legal and compliance” department starting next month, will begin in his role immediately. Marsalek was due to step down from the COO role to a new position in charge of business development, Wirecard said in May.The company suffered one of the worst stock slumps in the history of Germany’s benchmark index on Thursday after revealing that auditors had been unable to find billions of cash that was supposed to be held in Asian banks. The company warned loans of as much as 2 billion euros could be terminated if its audited annual report, delayed for the fourth time, was not published by Friday.Marsalek had tried to get in touch with the two Asian banks and trustees over the past two days to recover the missing money, but wasn’t successful, according to a person familiar with the matter. It’s unclear if the funds can be recovered, the person added. Marsalek couldn’t immediately be reached for comment.Ernst & Young was unable to confirm the location of the cash in certain trust accounts, and there was evidence that “spurious balance confirmations” had been provided, Wirecard said in a statement on Thursday. That’s about a quarter of the consolidated balance sheet total, the company said.“We are stunned,” said Ingo Speich, a fund manager at Deka Investments, a top 10 shareholder at the firm. “A new start in terms of personnel is more urgent than ever.”The escalating crisis also calls into doubt the future of Chief Executive Officer Markus Braun. The executive, also the company’s biggest shareholder, has been at the helm since 2002, building the company from a startup into a payment provider whose technology facilitates transactions around the world.Braun painted the company as a potential victim in a separate statement. The CEO has been resisting calls to resign and aggressively defending the company against accusations of accounting fraud, led by a series of articles in the Financial Times.“It is currently unclear whether fraudulent transactions to the detriment of Wirecard AG have occurred,” said Braun, adding that the company will file a complaint against unnamed persons.In another statement published overnight, Braun said the trustee involved is in “constant contact” with EY and Wirecard and has promised to clear up the issue quickly with the two banks.“It cannot be ruled out that Wirecard has been the victim in a substantial case of fraud,” Braun said.The stock dropped as much as 71% to 29.90 euros in Frankfurt on Thursday, one of the biggest falls on record and the largest for a member of Germany’s prestigious 30-company DAX stock index. It later recovered somewhat to 39.90 euros, a decline of 62%. Wirecard’s bonds suffered a record plunge.Loan IssueWirecard warned loans up to 2 billion euros could be terminated if its audited annual report was not published by June 19. Analysts at Morgan Stanley estimated that Wirecard has available cash of around 220 million euros, if it cannot locate the missing $2.1 billion.“While we would expect Wirecard to seek covenant waivers, if the banks call 2 billion-euros of debt and that is mostly drawn, then we expect investor focus to turn to the balance sheet and liquidity,” said analysts at Morgan Stanley in a note on Thursday.Wolfgang Donie, analyst at NordLB, warned that the “overall situation at Wirecard can only be described as insupportable and the scandal is now becoming a crisis that is threatening the existence of the company.”German financial markets regulator BaFin said it is examining Wirecard’s disclosure on Thursday as part of its investigation into whether the company violated rules against market manipulation, according to a spokeswoman.In September 2018, Wirecard reached a market valuation of 24.6 billion euros, replacing Commerzbank AG in the DAX alongside titans such as Volkswagen AG, Siemens AG, and Deutsche Bank AG. Following Thursday’s collapse, the company is valued at around 6.7 billion euros.“Wirecard’s retreat could be terminal,” said Neil Campling, an analyst at Mirabaud Securities.EY told Wirecard that their results will require additional audits after two unnamed Asian banks that have been managing the company’s escrow were unable to find accounts with about 1.9 billion euros in funds, Wirecard said in an additional statement. Those funds had been set aside for risk management, the company said.Headquarters SearchedWirecard said last month that the latest delay in publishing results was due to EY needing more time to finish its review, and that the auditor hadn’t found anything material within the scope of its work. Wirecard had previously postponed the results while it was working with KPMG on a probe into allegations about accounting irregularities.Braun has aggressively fought against allegations that the company’s financials have been mismanaged. Braun has also resisted calls from activist investors TCI Fund Management Ltd. to step down, promising to regain investor confidence and improve compliance and control.Wirecard headquarters were searched in May by German prosecutors as part of a probe involving the company’s senior management.Wirecard said in February that full-year revenue rose about 38% to 2.8 billion euros while earnings before interest, taxes, depreciation and amortization jumped 40% to 785 million euros.(Updates with Braun statement from 10th 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.
Deutsche agreed to pay a $1.25 million penalty to settle the allegations that two of the bank's traders engaged in numerous instances of a type of market manipulation called "spoofing" in Treasury futures and Eurodollar futures contracts on CME, the bank said in a statement. The CFTC has been aggressively pursuing traders for the practice, a tactic designed to create a false appearance of demand. In 2018, the agency established a task force dedicated to rooting out this form of market manipulation.
(Bloomberg) -- Applications for unemployment benefits in the U.S. fell less than forecast last week, showing only gradual improvement from the worst of the pandemic-related layoffs even as states reopen more of their economies.Initial jobless claims for regular state programs totaled 1.51 million in the week ended June 13, down slightly from an upwardly revised 1.57 million in the prior period, Labor Department figures showed Thursday. The 58,000 weekly drop was the smallest since claims began to retreat in early April.Continuing claims -- the total number of Americans claiming ongoing unemployment benefits in state programs -- decreased to 20.5 million in the week ended June 6, compared with a median projection of 19.9 million. Those figures are reported with a one-week lag.“The employment data are very unconvincing, it’s one of the things causing the markets to stall,” said Aneta Markowska, chief financial economist at Jefferies. “Without employment starting to cooperate or participate in the recovery, you’re not able to sustain the consumer spending which helps drive the market.”A separate report Thursday showed manufacturing in the Philadelphia region unexpectedly expanded in June. The Federal Reserve Bank of Philadelphia’s index of general business activity soared to 27.5 from minus 43.1 a month earlier as orders and sales picked up. The 70.6-point swing was the largest in records back to 1968.U.S. stocks recovered from early losses while the 10-year Treasury note was little changed approaching midday.By several metrics, the economy has rebounded at a faster pace than many anticipated. Payrolls at companies increased by several million in May and consumer spending on cars, restaurant meals and more soared last month, exceeding expectations as states loosened restrictions. But the jobless claims data remain a glaring blemish that shows churn and volatility in a labor market that entered the year in solid shape.The number of Americans applying for jobless benefits exceeded the 1.29 million median estimate in a Bloomberg survey of economists for the latest week, which coincides with the survey period for the monthly employment report.The labor market recovery “is going to be a long recovery, and today was a reminder that it’s not going to improve every week in a straight line,” said Brett Ryan, senior U.S. economist at Deutsche Bank Securities. He added that the data suggest the June employment report, out early next month, may not be as positive as forecasters would have expected.Powell’s AssessmentFed Chair Jerome Powell underscored this dichotomy to lawmakers Tuesday when he said, “We would expect to see large numbers of people during this period coming back to work during this second period -- call it the bounce back or the beginning of the recovery,” Powell said. “Then we think, and I think most if not all forecasters think, that will leave us well short of where we were in February.”Given the unprecedented surge of claims in recent months, many economists look to the non-seasonally adjusted figures for a more accurate read on claims. Unadjusted continuing claims actually climbed by almost 26,000 to 18.7 million, boosted by an almost quarter-million jump in California from the previous week. Unadjusted initial claims dropped by more than 128,000 last week.In addition to California, unadjusted continuing claims rose almost 110,000 in Texas and Oregon saw a more than 144,000 jump.In the week ended June 13, states reported 760,526 initial claims for Pandemic Unemployment Assistance, the federal program that extends unemployment benefits to those not typically eligible like the self-employed. The total number of unadjusted continuing claims in all programs edged lower to 29.2 million in the week ended May 30.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) -- Cerberus Capital Management LP has given up on the art of persuasion. After losing $900 million on stakes in Deutsche Bank AG and its smaller rival Commerzbank AG — about half of its original 2017 investments — the New York private equity firm has come out fighting. That Cerberus is turning from backer to shareholder activist says more about its miscalculations on German banking than its aspirations.Cerberus, run by the low-profile billionaire Stephen Feinberg, has vowed to seek “alternative paths” after Commerzbank rejected its request last week to give it two seats on the company’s supervisory board. In a punchy response, Cerberus said it remained committed to “achieving substantial change to the leadership,” and that management had failed to meet targets that weren’t ambitious enough to begin with.Commerzbank held its annual shareholder meeting just last month, so pushing for a seat at the table would mean Cerberus getting a German court to enforce an extraordinary general meeting, while winning over other investors to nominate the new candidates.The German bank is indeed in an “exceptionally difficult and vulnerable position,” as Cerberus points out. The pandemic struck just as it was starting to work through its latest restructuring. The shares have rebounded from a May low but they still value the lender at just 20% of its tangible book, hardly a sign of strength. In the European benchmark bank index, only an Italian and a Spanish bank — whose governments have a fraction of the firepower of Germany to support the economy through the pandemic — trade at similar lows.The frustration is understandable. Commerzbank’s chief executive officer, Martin Zielke, hasn’t exactly aimed for the stars and his execution has been slow. He has targeted a paltry return on tangible equity of 4% from cutting branches and some jobs. Deutsche Bank, in the middle of its biggest overhaul in decades, aims for 8% (although it’s questionable whether that’s achievable).Cerberus isn’t alone in wanting deeper and faster cuts. At least two more large Commerzbank investors agree, Bloomberg News has reported. And the German government, which still owns 16% of the lender after its crisis-era bailout, replaced its two supervisory board members in May because of similar concerns.However, Commerzbank’s management isn’t entirely to blame for Cerberus’s losses — even if the investment firm feels its advice fell on deaf ears in the 70 meetings it says it held with the company. The U.S. fund’s endorsement of a Deutsche-Commerzbank merger last year overlooked the difficulty of bringing together two large German employers, including significant job cuts that labor unions resisted. The aborted merger was a distraction at a time when both lenders needed to get their own houses in order.Nor should it have been a surprise that Commerzbank didn’t want to employ the consulting services of Cerberus’s advisory arm. While Deutsche Bank hired Cerberus in that capacity, the role was controversial because it gave a division of the private equity firm access to sensitive information (albeit across a Chinese wall).In fairness, the banking world did look rather different when Cerberus made its merger gambit. Interest rates were expected to rise, not head deeper into negative territory, and a redesign of Germany’s fragmented banking market wasn’t inconceivable. Cerberus is also an investor in Hamburg Commercial Bank, which was privatized in 2018.Unfortunately for Commerzbank’s shareholders, banking profitability will remain strained for some time. Loan losses from its core Mittelstand customers could hit profit as Covid-19 and trade tensions curtail economic activity. Zielke, who has hired McKinsey & Co. to review the business, has pledged deeper cuts. But getting buy-in to reduce jobs in the aftermath of a pandemic will be tough. Half of the bank’s supervisory board members are employee representatives, and job reductions need to be negotiated with a works council.Shareholder activism in banking hasn’t had much success, with attempts failing at Barclays Plc and UBS Group AG. Regulators need be won over to the cause, and in this case the government too. Cerberus going on the attack may be more about saving face with its own investors, but battling a German lender that anyone would struggle to turn around is a thankless task.This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Elisa Martinuzzi is a Bloomberg Opinion columnist covering finance. She is a former managing editor for European finance at Bloomberg News.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.