Wirecard AG (OTC: WRCDF) shares have collapsed in the past two days after the company said it could not account for $2.1 billion in cash that was listed on its balance sheet.
On Thursday, Wirecard shares plummeted more than 60%, and the stock dropped another 45% on Friday morning after the company’s CEO resigned.
Wirecard investors have been blindsided by the accounting scandal, but Wirecard short sellers are making a killing.
On Thursday, S3 Partners analyst Ihor Dusaniwsky said Wirecard is the most heavily shorted stock in the German stock market, with more than $3.22 billion in short interest and 27.4 million shares shorted. That number represents 23.9% of the stock’s total float. Dusaniwsky said the stock’s borrow fees have jumped from 15% to more than 20% as the accounting scandal has developed in recent days.
Great Day For Shorts: On Thursday alone, Dusaniwsky said short sellers made a $2.25 billion profit off the stock, bringing their net mark-to-market profits for the year up to $2.19 billion. Friday morning’s trading action suggests Wirecard short sellers will have another huge day.
Unfortunately, Dusaniwsky said the Wirecard short trade will likely get very crowded in the near term, and he expects borrow fees to continue to rise significantly.
“But if Wirecard’s stock price rebounds, expect a slew of short covering as short sellers should be quick to close up their positions in order to realize their outsized recent mark-to-market profits,” Dusaniwsky said.
Benzinga’s Take: Wirecard was reportedly warned on Thursday that it must report consolidated financials by Friday or $2 billion in loans could be called in, potentially causing the company to become insolvent over the weekend.
Traders should look for at least some short sellers to cash out of their positions into Friday’s close given the uncertainty surrounding what will happen with the highly volatile stock over the weekend.
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