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Wirecard, Once Germany’s Pride, Turns National Embarrassment – Yahoo Canada Finance

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(Bloomberg) — The company once hyped as the future of German finance has become a symbol of national embarrassment.

After promising to shake up the world of payments, Wirecard AG saw its stock collapse and its chief executive officer resign after 1.9 billion euros ($2.1 billion), or about a quarter of its balance sheet, went missing. It subsequently withdrew its fiscal 2019 and first-quarter 2020 financial results after saying those funds on its balance sheet didn’t exist. That was a bombshell for Germany’s establishment after it defended Wirecard from critical investors who have long warned of accounting irregularities.

“We Germans aren’t as prone to euphoria as in the U.S., but back when Wirecard joined the DAX, there was this great feeling that we can also produce successful tech giants,” said Hans-Peter Burghof, a finance professor at the University of Hohenheim in Stuttgart. “What we’re seeing now is just awful.”

“It’s embarrassing for Germany,” he said. “The banks, the auditors and the regulators weren’t asking the right questions.”

For all its engineering prowess, Germany has lagged in producing technology giants such as Facebook Inc., with the exception of software company SAP SE. After a run of acquisitions, Wirecard seemed set to change that narrative: based in a sleepy suburb of Munich, a city better known as the home of BMW and Siemens, the upstart company bumped then 148-year-old Commerzbank AG out of the DAX, Germany’s benchmark index of publicly-traded companies, in 2018.

Wirecard’s origins focused on servicing payments for online gambling and porn. More recent customers include Germany’s most successful soccer club Bayern Munich, French mobile phone carrier Orange SA and Swedish furniture giant Ikea. Investors, analysts and regulators were willing to overlook Wirecard’s opaqueness as long as it kept growing, even as questions about its accounts were highlighted last year by a series of media reports, led originally by the Financial Times.

The stock slid and investors placed so many bets that it would tumble further that German financial markets regulator BaFin stepped in to temporarily ban such short positions against Wirecard, a step it had never taken for an individual company.

“Our focus was on protecting trust in the market as a whole, not a single company,” a BaFin spokeswoman said in response to questions from Bloomberg. BaFin directly oversees only banks and insurers.

Others don’t agree. Investors’ losses would have been “a fraction of what they are” if BaFin had taken a different approach, said Carson Block, the famed short seller. He says his firm Muddy Waters made a bet against Wirecard in 2016, but didn’t renew it.

Investors Balk

The stock has fallen 86% since it joined the DAX. Creditors’ faith that they’ll get their money back from Wirecard has also evaporated: by Friday its bonds were offering yields similar to those of bankrupt rental-car giant Hertz Global Holdings Inc.

The collapse in the shares risks further undermining the readiness of Germans to invest in stocks rather than savings accounts, which currently offer negligible interest.

The German regulator also investigated possible market manipulation by short sellers and journalists, and whether Wirecard failed to meet its disclosure obligations. It asked Munich prosecutors to take both matters further.

A spokeswoman for Wirecard didn’t respond to an email seeking comment for this story. A Finance Ministry spokesman declined to comment on the case, while telling reporters the government seeks to safeguard “a healthy and competitive financial industry” in Germany.

When it came to Wirecard, the authorities “limited themselves to the tiniest accusation,” said Armin Stracke, a former trader and Wirecard investor who filed a complaint with BaFin this year alleging that the company had misled investors.

BaFin is still probing whether Wirecard’s suspected accounting issues constituted market manipulation. Unlike in other investigations, the regulator is reliant on the assessment of other authorities in this matter, the spokeswoman said.

“BaFin started its investigations early on, but sadly that couldn’t prevent the striking losses for investors,” said Florian Toncar, a German lawmaker from the opposition Free Democrats. “It would be very good to see BaFin use the tools at its disposal to quickly provide investors with clarity.”

Some German lawmakers want to expand BaFin’s powers to avoid future financial blow-ups. For Burghof, the finance professor, it isn’t so much a question of more power as exercising greater discretion within the regulator’s remit.

Lenders’ Help

Wirecard’s woes mark another low for Germany Inc. after the emissions cheating scandal that engulfed its carmakers and billions of dollars that Deutsche Bank AG paid in fines and legal settlements for misconduct following an aggressive expansion as a global investment bank.

Wirecard’s ascent probably wouldn’t have been possible without its lenders. Deutsche Bank, Germany’s biggest bank, even extended credit to former CEO Markus Braun that was collateralized with Wirecard shares, a transaction known as margin loan. A Deutsche Bank spokesman declined to comment on individual clients.

“A lot of sides are responsible,” Tim Albrecht, a fund manager at Deutsche Bank’s DWS asset management unit, said in an interview with Frankfurter Allgemeine Zeitung. “That starts with the institutional failings at Wirecard and goes all the way to the banks who sent positive signals with their credulous analyst reports.”

Now, Germany’s banks and regulators are putting Wirecard under the microscope. While BaFin continues to investigate, at least 15 commercial lenders, including Commerzbank and ABN Amro Bank NV of the Netherlands, are negotiating about the next steps, Bloomberg reported on Friday.

Wirecard, for its part, said it’s in “constructive talks” with lending banks.

(Updates to add that Wirecard withdrew its recent financial results in second paragraph.)

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Federal $500M bailout for Muskrat Falls power delays to keep N.S. rate hikes in check

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HALIFAX – Ottawa is negotiating a $500-million bailout for Nova Scotia’s privately owned electric utility, saying the money will be used to prevent a big spike in electricity rates.

Federal Natural Resources Minister Jonathan Wilkinson made the announcement today in Halifax, saying Nova Scotia Power Inc. needs the money to cover higher costs resulting from the delayed delivery of electricity from the Muskrat Falls hydroelectric plant in Labrador.

Wilkinson says that without the money, the subsidiary of Emera Inc. would have had to increase rates by 19 per cent over “the short term.”

Nova Scotia Power CEO Peter Gregg says the deal, once approved by the province’s energy regulator, will keep rate increases limited “to be around the rate of inflation,” as costs are spread over a number of years.

The utility helped pay for construction of an underwater transmission link between Newfoundland and Nova Scotia, but the Muskrat Falls project has not been consistent in delivering electricity over the past five years.

Those delays forced Nova Scotia Power to spend more on generating its own electricity.

This report by The Canadian Press was first published Sept. 16, 2024.

The Canadian Press. All rights reserved.

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Roots sees room for expansion in activewear, reports $5.2M Q2 loss and sales drop

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TORONTO – Roots Corp. may have built its brand on all things comfy and cosy, but its CEO says activewear is now “really becoming a core part” of the brand.

The category, which at Roots spans leggings, tracksuits, sports bras and bike shorts, has seen such sustained double-digit growth that Meghan Roach plans to make it a key part of the business’ future.

“It’s an area … you will see us continue to expand upon,” she told analysts on a Friday call.

The Toronto-based retailer’s push into activewear has taken shape over many years and included several turns as the official designer and supplier of Team Canada’s Olympic uniform.

But consumers have had plenty of choice when it comes to workout gear and other apparel suited to their sporting needs. On top of the slew of athletic brands like Nike and Adidas, shoppers have also gravitated toward Lululemon Athletica Inc., Alo and Vuori, ramping up competition in the activewear category.

Roach feels Roots’ toehold in the category stems from the fit, feel and following its merchandise has cultivated.

“Our product really resonates with (shoppers) because you can wear it through multiple different use cases and occasions,” she said.

“We’ve been seeing customers come back again and again for some of these core products in our activewear collection.”

Her remarks came the same day as Roots revealed it lost $5.2 million in its latest quarter compared with a loss of $5.3 million in the same quarter last year.

The company said the second-quarter loss amounted to 13 cents per diluted share for the quarter ended Aug. 3, the same as a year earlier.

In presenting the results, Roach reminded analysts that the first half of the year is usually “seasonally small,” representing just 30 per cent of the company’s annual sales.

Sales for the second quarter totalled $47.7 million, down from $49.4 million in the same quarter last year.

The move lower came as direct-to-consumer sales amounted to $36.4 million, down from $37.1 million a year earlier, as comparable sales edged down 0.2 per cent.

The numbers reflect the fact that Roots continued to grapple with inventory challenges in the company’s Cooper fleece line that first cropped up in its previous quarter.

Roots recently began to use artificial intelligence to assist with daily inventory replenishments and said more tools helping with allocation will go live in the next quarter.

Beyond that time period, the company intends to keep exploring AI and renovate more of its stores.

It will also re-evaluate its design ranks.

Roots announced Friday that chief product officer Karuna Scheinfeld has stepped down.

Rather than fill the role, the company plans to hire senior level design talent with international experience in the outdoor and activewear sectors who will take on tasks previously done by the chief product officer.

This report by The Canadian Press was first published Sept. 13, 2024.

Companies in this story: (TSX:ROOT)

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Talks on today over HandyDART strike affecting vulnerable people in Metro Vancouver

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VANCOUVER – Mediated talks between the union representing HandyDART workers in Metro Vancouver and its employer, Transdev, are set to resume today as a strike that has stopped most services drags into a second week.

No timeline has been set for the length of the negotiations, but Joe McCann, president of the Amalgamated Transit Union Local 1724, says they are willing to stay there as long as it takes, even if talks drag on all night.

About 600 employees of the door-to-door transit service for people unable to navigate the conventional transit system have been on strike since last Tuesday, pausing service for all but essential medical trips.

Hundreds of drivers rallied outside TransLink’s head office earlier this week, calling for the transportation provider to intervene in the dispute with Transdev, which was contracted to oversee HandyDART service.

Transdev said earlier this week that it will provide a reply to the union’s latest proposal on Thursday.

A statement from the company said it “strongly believes” that their employees deserve fair wages, and that a fair contract “must balance the needs of their employees, clients and taxpayers.”

This report by The Canadian Press was first published Sept. 12, 2024.

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