Wirecard’s Braun took €35m loan from group’s banking arm

Wirecard’s former chief executive Markus Braun borrowed €35m from the payment group’s banking arm in January, triggering a clash with board members and an ongoing review from German financial watchdog Bafin.

Most of the parent group’s supervisory board, including chairman Thomas Eichelmann, only learned about the loan after the money was paid out to Mr Braun, according to people with first-hand knowledge of the matter, who said those directors were “furious”.

“There was a shouting match between Mr Eichelmann and Mr Braun,” one of the people said, adding that Mr Braun initially argued that the parent group’s supervisory board had no formal oversight over lending decisions at the bank it owns. However, the CEO was eventually persuaded to repay the loan, which he did in mid-March.

Mr Braun denied through his lawyer that he questioned the authority of Wirecard’s supervisory board over the lending decision. The lawyer said that the loan was repaid “as agreed” in mid-March. “No pressure of any kind was exerted,” the lawyer said.

At the time, Mr Braun was the chief executive of Wirecard and the group’s single largest shareholder, holding a 7 per cent stake worth close to €1bn at the time.

Mr Braun resigned last month after the company announced that €1.9bn of cash on its balance sheet probably did “not exist”. He was later arrested on suspicion of false accounting and market manipulation and released on €5m bail.

Mr Braun tapped Wirecard Bank as he was scrambling to refinance a €150m loan from Deutsche Bank which he had arranged three years earlier. He had pledged half his stake in Wirecard to Deutsche Bank as a collateral. By the end of 2019, Germany’s largest lender informed Mr Braun that it did not want to extend the loan.

“The loan [at Wirecard Bank] was taken to avoid the enforced sale of shares by a [different] bank,” Mr Braun’s lawyer told the Financial Times.

Bafin found out about the loan only after it installed a special representative at Wirecard Bank in late June to monitor the bank management’s decisions and ensure it complied with regulations. Germany’s financial watchdog is currently examining whether the lender had been required to notify the regulator about the loan and whether the lending decision infringed any rules, according to a person familiar with the matter.

Under German law, loans to related parties require the unanimous consent of the management and the supervisory boards and need to be granted at market-based conditions.

The loan was approved by the management and supervisory boards of Wirecard Bank. While the bank and the group, Wirecard AG, are formally separate legal entities, some of the people involved had senior roles at both. Alexander von Knoop, Wirecard’s chief financial officer who reported to Mr Braun at Wirecard AG, was until June on the bank’s management board which had to approve the loan. Two of the three members of the Wirecard Bank’s supervisory board — its chairman Wulf Matthias and Austrian venture capital investor Stefan Klestil — also have seats on the group supervisory board.

A lawyer representing Wirecard Bank’s supervisory board members declined to comment. Mr von Knoop declined to comment through Wirecard’s press office.

The bank charged an annual interest rate of 12.55 per cent and Mr Braun paid €963,909.72 in interest for the two-and-a-half months of the loan’s duration, his lawyer said.

Wirecard Bank, which had €1.9bn in total assets by the end of 2019, is a small lender specialising in settling credit card payments. Lending to high-net-worth individuals or companies is not part of its core business. By the end of 2019, its total loans to companies stood at just €298.6m. For the tiny lender, a €35m loan to one single individual represented a large concentration risk.

In a scenario where Mr Braun defaulted and the loan had to be written off completely, an amount equivalent to more than a fifth of the lender’s common equity capital would have been wiped out.

One person familiar with the matter said the loan was not secured. A lawyer representing Mr Braun only told the Financial Times that Wirecard shares were not pledged to Wirecard Bank.

Mr Braun’s lawyer said that while Mr Braun applied for the loan, he did not play any rule in its approval. “[Mr Braun] is assuming that all formal conditions for the loan were adhered to,” the lawyer said, adding that the group’s legal department and external advisers were involved in the lending decision.

In mid-May, Mr Braun agreed a €120m credit line with Oldenburgische Landesbank, a small, private-equity owned lender. He pledged Wirecard shares as well as three properties in Austria as collateral. After Wirecard’s shares began to collapse in mid-June, he received margin calls and over days, the share collateral was sold.

Wirecard, Wirecard Bank and Bafin declined to comment.