Wirecard Still Raises Plenty of Questions

(Bloomberg Opinion) -- Wirecard AG isn’t your average fintech darling. It is publicly listed, has a place in the prized Dax index of blue-chip German companies, and has a bigger market value ($18.3 billion) than Deutsche Bank AG.

When the Financial Times’s allegations of dodgy accounting pummeled the stock earlier this year, Wirecard wasn’t alone in rebuffing the reports: German regulators swooped in to protect the company by banning hedge funds from betting against it. The case is seen as central to trust in Germany’s markets.

Since the short-selling ban was lifted last week, more financial support has emerged for Wirecard, which is fighting new FT allegations about its dealings with partner companies. Japanese billionaire Masayoshi Son unveiled a $1 billion convertible bond investment in Wirecard on Wednesday via SoftBank Group Corp., squeezing the bearish hedge funds. And on Thursday, the electronic payment company’s 2018 results were signed off by auditors at Ernst & Young, even as the firm faces ongoing probes in Singapore and Germany into its accounting practices.

The problem is that for all its blue-chip credentials, Wirecard still bears the hallmarks of a tech company that has grown too fast without properly looking under the hood. It processed 124.9 billion euros in transactions last year, a rise of 37 percent, and is sticking to racy forecasts of about 40 percent growth in underlying earnings this year. Yet scrutiny of this monster expansion has clearly been wanting: Wirecard promised no fewer than 12 new measures to improve risk controls on Thursday, and said it couldn’t rule out that one or more employees had committed “punishable offenses.”

Accounting mistakes flagged by a whistleblower have been fixed, according to the company, and Ernst & Young seems to have combed through the transactions in question. But even the auditors warned that the outcome of the probes could still affect the Wirecard’s financial position.

With the company’s bosses promising to “over-invest” in risk management, including the creation of new board committees, and business expansion likely to come under more scrutiny, is this still a stock that merits a share price that’s about 30 times expected earnings? Mirabaud Securities’ Neil Campling says the annual report left him with more questions than answers.

The worry is that worse news might come. Wirecard says there are inaccuracies in the FT’s latest piece about its apparent reliance on a handful of opaque partner companies for a large chunk of its revenues. But it hasn’t quashed it entirely. 

In many ways, this is the nature of the fintech beast. Wirecard is a small company with a lean governance model moving huge amounts of money around, according to Garen Markarian of the Otto Beisheim School of Management, and doing so under the nose of a regulator that’s keen not to choke off a tech success story. But the finance industry’s supervisors can’t let their embrace of innovation blind them to the risk.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Lionel Laurent is a Bloomberg Opinion columnist covering Brussels. He previously worked at Reuters and Forbes.

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