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EU Banks Face Massive Losses On Exiting Wirecard Loans

European Banks Face Losses On Wirecard Loans

The troubles afflicting Wirecard AG are not limited to the German payment processing company. Some European lenders say they expect to recover as little as 20 percent of the nearly $2 billion they are owed, sources told The Wall Street Journal.

As the one-time darling of Europe’s financial technology (FinTech) community faces insolvency with the debt of nearly $4 billion, some lenders said there are few buyers willing to pay cents or euros on the debt.

Once a $28 billion FinTech leader, Wirecard has reported debt of nearly $4 billion after it revealed that $2.1 billion went missing from two Philippines banks. 

Wirecard’s debt includes 1.75 billion euros ($2 billion) in revolving credit from 15 lenders.

For example, The Journal reported that Lloyds Banking Group PLC’s dent of 120 million ($137 million) was sold at around 18 cents on the euro to distressed debt hedge funds. A second unnamed bank tried to auction off its loan of 200 million euros ($229 million), but the sale fell through, the report said.

The WSJ report comes just days after the paper uncovered that Wirecard may have misled the financial community about its partnerships with blue-chip companies. While Wirecard touted deals with SAP SE, Zurich Insurance Group and SoftBank Group Corp., the paper learned that some of those partnership announcements were misleading. 

The Federal Financial Supervisory Authority, or BaFin, Germany’s market watchdog, has faced criticism over the regulator’s reported failure to investigate warnings about Wirecard. Among those sounding the alarm about Wirecard’s potential fraud and money laundering activity have been investors, U.S. law enforcement authorities, journalists and others.

But BaFin didn’t take any action on those warnings, instead playing them down for years. The regulator handed the ball to other authorities, and in some cases, put off investigating the company’s accounts, according to documents seen by The Journal. BaFin saw former Wirecard CEO Markus Braun as more trustworthy than his critics because of his large amount of shares in the company.

On Thursday (July 16), an executive in the Wirecard scandal reportedly admitted guilt to the multi-billion-dollar fraud and money laundering case. The executive was the CEO of CardSystems Middle East, the largest unit under Wirecard’s command. Nicolas Fruehsorger, a defense lawyer for the executive, said his client “has voluntarily given himself up for the proceedings and — in contrast to others — takes individual responsibility,” according to Reuters.

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New PYMNTS Report: Preventing Financial Crimes Playbook – July 2020 

Call it the great tug-of-war. Fraudsters are teaming up to form elaborate rings that work in sync to launch account takeovers. Chris Tremont, EVP at Radius Bank, tells PYMNTS that financial institutions (FIs) can beat such highly organized fraudsters at their own game. In the July 2020 Preventing Financial Crimes Playbook, Tremont lays out how.

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