09/17/2020

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What’s Going on With Wirecard?



German Fintech Giant Reels


Wirecard AG (WDI), a German digital payments company, announced yesterday that over $2 billion listed on its balance sheet probably never existed. This $2 billion is equivalent to the total net income Wirecard reported over the course of 10 years. The company has lost $12.5 billion in market value as its stock sank 85% in just three trading sessions.

Wirecard was once one of Germany’s leading fintech companies. It created payment software and partnered with IKEA, FedEx (FDX), Aldi, and other retailers. The company said its payment systems are still operating like normal. However, it is now reeling from the scandal and trying to retain credit lines, sell parts of its business, and reduce costs in order to stay viable.

Some Short Sellers Win Big


Wirecard has faced skepticism from investors for some time. Certain people who bet the company’s stock would decline saw huge returns when share prices plummeted.

Short sellers are investors who borrow shares of a company, then sell them with the expectation that they will be able to buy them back for a lower price in the future. Companies that shorted Wirecard’s stock made hundreds of millions of dollars. For example, Slate Path Capital, a New York-based firm that had one of the biggest short positions, was up as much as $227 million on their bet thanks to Wirecard’s tumble at the end of last week.

Though some skeptics of the company have won big, many people who tried to short Wirecard over the past few years as its stock climbed steadily higher, lost money in the process.

European Tech Investors May Be Wary Going Forward


Other investors who believed in Wirecard have lost huge amounts of money. Wirecard’s stock was high for several reasons. The COVID-19 pandemic raised investor interest in virtual payment systems significantly. The German establishment also stepped in to help the company flourish and even banned short sellers for a brief period last year.

Additionally, the ratio of tech investors to tech companies in Europe is skewed. Large numbers of investors have been chasing a relatively small amount of European companies for years. But as Wirecard unravels, this problem will get worse because even though investors are eager to back tech companies, they may begin to tread carefully after this scandal.


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