The collapse of the financial giant Wirecard is a major setback for an economy like Germany's, which likes to present itself as solid and, above all, reliable. For the first time, one of the companies of the selective DAX, in which the 30 largest German companies are grouped, goes bankrupt. And it falls with the smell of scandal permeating everything, a hole of 1.9 billion euros that simply did not exist, the balance sheets had been inflated with this amount to make the company more attractive to customers and investors. Wirecard was the standard-bearer of the fintech sector in Germany, which makes the fall even stronger.
On Thursday, Wirecard went into receivership. Three days earlier, his resigned CEO, Markus Braun, had been arrested, although he was subsequently released on a 5 million euro bond. This came after the company acknowledged the hole by stating that "Wirecard's board of directors believes that there is a prevailing probability that there are no bank account balances
for an amount of 1.9 billion euros".
The fiasco is of greater proportions because it is an announced collapse, with information in the Financial Times since February 2019 in which, based on an anonymous whistleblower, it warned of the falsification of balance sheets, and is calling into question the German supervisory authority, BaFin. Its own head, Felix Hufeld, has described the scandal as a "total disaster" and acknowledges mistakes. "A wide range of private and public entities, including my own, have not been effective enough," the president of the financial supervisory authority said.
The European Commission, which has opened an investigation into the role played by the German supervisor in determining whether it has failed in its assigned task, thinks similarly. "We have asked the ESMA (European Securities and Markets Authority) today to conduct a preliminary investigation to find out what was done wrong with Wirecard. I have also asked for the next steps to be established. Listed companies must be effectively monitored by the competent authorities," Vice President Valdis Dombrovskis wrote on Twitter.
In other words, the European supervisor will examine whether the German regulatory authorities have done their job properly. The Paris-based ESMA is the EU agency responsible for monitoring financial markets and assessing whether there are risks to investors or financial stability, although surveillance of listed companies is the responsibility of national agencies, in this case, BaFin. One supervisor was put in question for failing to detect a ? 1.9 billion hole in Wirecard's balance sheets, despite signs that it was multiplying in recent months. Now, the ongoing investigation could end up in instructions for a remodeling of the German supervisor's operation, which has become evident by not knowing how to control a giant like Wirecard with a complex structure and which was operating inside and outside the EU.
This is a blow to the reputation of the regulators of the German economy, which comes just as the country is about to assume the presidency of the European Union. It will do so next Wednesday, dragging along the stain of the collapse of what was one of its flagship companies in the new economy.