As details about the failed management of Wirecard AG unfold, it becomes clear that the company’s core business has been losing cash for years, the Financial Times reported.
The German payment processing company’s operating performance in Europe and the Americas was far worse than previously known, according to a report from KPMG, the Netherlands-based global accounting firm, obtained by the newspaper.
Wirecard’s filing insolvency two weeks ago has exposed a pair of deposits totaling $2.1 billion that were never made in two Philippines banks as the company had said.
While the rest of the company’s divisions have been touted as highly-profitable, it now appears to be just a show, the report found.
Ernst & Young, the company’s auditor, reported that from 2016 to 2018, Wirecard’s annual earnings nearly doubled to 439 million euros ($494 million).
But such profits did not exist, the Times reported. A special audit conducted late last year by KPMG and seen by the paper revealed the profits appear to have existed largely on paper.
For example, two years ago when Wirecard’s stock market valuation topped 24 billion euros ($26.9 billion), activities under the company’s dsirect control had 74 million euros ($83 million) in operating losses, compared to losses of 3 million euros ($3.3 million) in 2017, the KPMG report revealed.
Actual losses were masked by profits attributed to outsourced activities in Asia, the Times reported.
Wirecard declined to comment.
But last month the company warned investors that the profitable outsourced firms may not have “actually been conducted for the benefit of the company.”
“Wirecard has very few physical assets, and the risk is that many of its clients will switch to rivals soon,” a source told the newspaper.
Last week, Deutsche Bank, the Frankfurt-based multinational financial services company, said it was willing to rescue Wirecard Bank, the deposit-taking division of the German payment company.
“We’re obviously a big participant in the payments business, it’s a big part of what we do, especially in the corporate bank,” Deutsche’s chief financial officer James von Moltke told the Financial Times.
Also, last week, the head of the Federal Financial Supervisory Authority, Germany’s financial regulator, said the accounting scandal at the center of Wirecard AG’s insolvency was a “massive criminal act.”
“It is plain vanilla, old-fashioned criminal behavior,” Felix Hufeld said.
Germany’s Finance Minister Olaf Scholz told the German newspaper Allgemeine Sonntagszeitung he thought “we have so far only seen the tip of the iceberg” with regard to the Wirecard scandal. “There is probably more to come.”