Wirecard Says Missing $2.1 Billion Probably Doesn’t Exist

(Bloomberg) — Wirecard AG said the missing 1.9 billion euros ($2.1 billion) of cash on its balance sheet probably doesn’t exist, the latest in a dramatic fall from grace for a company once considered the future of German fintech.

The payments firm withdrew its recent financial results and said that previous descriptions of business with third parties, which process transactions on Wirecard’s behalf, were “not correct.” Even before the early Monday statement, the deepening scandal had seen Wirecard’s shares and bonds collapse, its chief executive depart, and left the company renegotiating debt terms with its lenders in a struggle for survival.

The company 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, pulling results for fiscal 2019 and the first quarter of 2020. 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.

Read more on how Wirecard became an embarrassment for Germany

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.

Moody’s Investors Service said on Friday it cut Wirecard’s credit ratings six levels, putting it one step from the lowest tier of junk.

Shares of Wirecard tumbled 72% last week, as the scandal culminated in Markus Braun’s resignation after almost two decades as CEO. He was replaced on an interim basis by James Freis.

Read more on how Braun has to unwind pledged shares

The 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 the statement.

(Updates with analyst’s comment in the sixth paragraph)

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