Bundesbank Missed Chance to Push Back on Wirecard Short Ban
(Bloomberg) -- Germany’s central bank passed up a chance to push back forcefully against a 2019 ban on bets against Wirecard AG shares, after judging the matter not to be its responsibility.
After Vice President Claudia Buch spoke to her counterpart at market regulator BaFin in February 2019, the Bundesbank opted not to share its own internal judgment on why a short sale prohibition wasn’t necessary, according to briefing documents for a parliamentary hearing on Wirecard seen by Bloomberg.
Wirecard’s share price whipsawed in 2019 on media reports of accounting irregularities only to collapse the following year after saying that 1.9 billion euros ($2.3 billion) in cash probably never existed. BaFin’s controversial ban on bets against the stock in 2019 drew criticism that the German establishment appeared more keen to protect the company rather than rigorously investigate it, effectively prolonging the fraud.
Bundesbank staff “took a skeptical view of the short-selling ban. I share the assessment,” Buch told the parliamentary investigation committee on Wirecard on Friday.
However, in the call with BaFin Buch was told that public prosecutors were investigating a possible case of blackmail against Wirecard. The central banker then decided the case was not within her jurisdiction.
“Bafin is in charge of the procedure, we would have been ready to provide an statement,” Buch said. “But Bafin didn’t ask for it.”
Germany’s Finance Ministry previously told lawmakers that the Bundesbank didn’t provide a formal statement because the question didn’t relate to financial stability, its specific area of responsibility. A Bundesbank spokeswoman referred Bloomberg to that communication.
BaFin justified its ban citing the preservation of “market integrity,” which the regulator said is in it’s remit rather than the central bank’s.
The German central bank needs to be consulted by law if BaFin plans to adopt measures which address financial stability or if the functioning of the market is under threat. These factors and the market integrity that is in BaFin’s remit rely on some common indicators and the broader differences are not clearly defined.
Bundesbank internal communications show that officials there believed a blanket ban on short-selling Wirecard stock was not necessary and a case-by-case approach to perceived manipulation would be more appropriate.
The briefing documents contain an email from one Bundesbank employee to another stating that it should provide such statements to BaFin under its internal guidelines.
Read More: German Watchdog Had Plenty of Chances to Dig Into Wirecard Fraud
BaFin didn’t have a legal basis for its actions, according to Danyal Bayaz, a lawmaker from the Green party.
“BaFin seemed to want the short sale ban above all else and essentially punched it through,” said Bayaz, who is a member of the parliamentary committee that is looking into the fraud scandal. “That put them on Wirecard’s side.”
The temporary prohibition of bets that Wirecard shares would fall was not about protecting the payments company, a BaFin spokeswoman said. The decisive reason for enacting it was a notification from Munich prosecutors that there were specific indications of planned manipulative attacks on the share price through short sales, she said.
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