Markus Braun did not lack ambition. For years, his grandiose vision was to make “payments invisible” by digitalising them, a message that helped turned the company he leads, Wirecard, into one of the hottest investments in Europe.
A financial technology group run from a Munich suburb, Wirecard joined the exclusive Dax 30 stock market index in 2018 on a wave of investor fervour which valued it at €24bn, more than Deutsche Bank, and earned it a place in pension funds around the world.
But on Thursday Wirecard revealed a problem that casts considerable doubt over its future: that of vanishing money. The company’s auditor for the last decade, EY, said it was unable to confirm that €1.9bn in company cash was really there.
The missing cash was equivalent to all the profits the group had declared since 2012, and Wirecard said if it failed to file audited financial statements on Friday, it would be at the mercy of lenders who could terminate €2bn worth of loans.
The revelation triggered a collapse in its stock market value to just €5bn and left its bonds trading for less than 40 cents on the euro. The violent reaction in financial markets indicates its future survival is at stake, and caps a tumultuous 18 months for a company that for much of its history was regarded as Germany’s next great technological hope.
The chaos of Thursday is a far cry from 2004, when Mr Braun — a former KPMG consultant who had joined the struggling company two years earlier — merged it with a small call-centre business listed on the Frankfurt Stock Exchange.
In its early years the enlarged company grew heavily in segments of the payments market that more established rivals avoided: the online gaming and porn industry.
Over time the company said it moved away from such business as it grew and became more mainstream.
Eduardo Marques at the San Francisco hedge fund Valiant Capital said many investors convinced themselves Wirecard was unusually profitable because it processed payments in legal grey areas where others feared to tread.
Periodic questions were raised about Wirecard’s accounting. EY was appointed in 2008 to conduct a special audit after an attack by short sellers focused on its balance sheet. The company received a clean bill of health, while two of those involved in the attack were prosecuted by the German authorities, a pattern which was to recur.
After surviving the financial crisis, Wirecard hitched a ride on a new wave of enthusiasm for fintechs, helped by being Germany’s only listed European digital payments company.
“This sector has been hyped a lot in recent years — if you wanted to invest in it, there were not many alternatives in Germany,” said Baki Irmak, co-founder of the Digital Leaders Fund, a German asset manager.
Wirecard also embarked on an aggressive acquisitions strategy, spending €1.3bn on more than 20 companies, including high-profile deals to take over operations from Citigroup in the US and Asia.
In 2016 Wirecard was subject to another attack, this time by anonymous short sellers alleging problems related to money laundering. Wirecard denied the claims, and BaFin investigated the authors for possible market manipulation.
For investors who had bought into Wirecard at just €4 a share, the company was a moneymaking machine. Between 2004 and 2018, Wirecard’s revenue grew 50-fold and its operating profit exploded by a factor of more than 70 times.
The shares hit a peak of nearly €200 in the summer of 2018, shortly before the company replaced Commerzbank as a member of the Dax index.
Many analysts seemed enamoured with the company. When Wirecard entered the Dax, Barclays analyst Gerardus Vos called it “a laser-focused company with a fantastic record”. In Germany it was commonly compared to SAP, the software company founded in the 1970s which became one of the country’s rare technology success stories.
Fahmi Quadir, founder of New York hedge fund Safkhet Capital, said repeated criticism had also bred complacency. “Wirecard was always able to change the narrative and brush past it,” she said. “After a decade it felt like investors had decided critics were just crying wolf.”
Mr Braun was soon promising an even brighter future. Last year, he pledged that revenue and operating profit by 2025 would be more than six times higher than they were in 2018, as consumers around the world abandoned cash.
Adopting the black turtleneck uniform of the tech industry, he positioned himself as a visionary who thinks a decade ahead. The company was obsessed about innovation, he frequently told journalists, analysts and investors.
At the start of last year the Financial Times reported problems in Wirecard’s Asia headquarters. Whistleblowers said staff had forged documents to mislead regulators and auditors.
Wirecard again denied the claims, alleging market manipulation and collusion with short sellers. BaFin launched another investigation and, after the Singapore authorities raided Wirecard’s offices, it imposed a two-month short-selling ban to protect the company from speculators.
“The Germans institutionally were just determined to rally round and just not look at the facts”, said Crispin Odey, a London-based hedge fund manager who last year threatened to sue BaFin after it imposed the ban against short selling.
On Thursday, Fabio De Masi, a senior politician of the leftwing Die Linke party, accused BaFin of “watching [Wirecard] idly for way too long” and called for a “radical change” in the watchdog’s regulatory culture.
In October the narrative began to change. The FT published documents which appeared to show profits at key subsidiaries were fraudulently inflated, and that EY had been misled.
Wirecard appointed KPMG to conduct a special audit it said would clear it, and a new chairman, Thomas Eichelmann, to bring new oversight.
But when KPMG reported back in April, after six-months of forensic investigation, it said it was unable to resolve whether the “lions share” of Wirecard profits reported from 2016 to 2018 were real.
The accounting firm also reported obstacles to its work, and said it could not confirm whether €1bn of cash balances were genuine, as it had to rely on the word of an absent trustee.
Wirecard continued to reassure investors, but its statements had started to attract the attention of BaFin, which began to investigate Mr Braun and three fellow executives on suspicion of market manipulation, allegations they have denied.
Full-year results were delayed three times, before Thursday’s announcement left investors pondering how much of Wirecard’s figures were fraudulent.
Mr Braun said in a statement that “it is currently unclear whether fraudulent transactions to the detriment of Wirecard AG have occurred” and appeared to blame others: he said that “the company will file a complaint against unknown persons”.
Once a paper billionaire, his fortune and reputation is now at stake. In an interview in December 2014, the FT had asked him whether Wirecard’s numbers were made up.
“It’s bullshit, why should I do this?” he said. “I am a shareholder of this company for 12 years, I have been running this company for 12 years, why should I take this risk.”