(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.
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.
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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We're #25! Industrials power modest Q3 gain for the TSX – BNN
The S&P/TSX Composite Index rose 3.91 per cent in the third quarter, with gains moderating after a blowout Q2 as equity markets digested the shocks from the COVID-19 pandemic, prospects for continued economic shutdowns and the impact of lower-for-longer interest rates.
Those gains have the Toronto benchmark ranked 25th out of 92 global peers, sandwiched between Romania’s Bucharest BET Index and Germany’s DAX Index, and comfortably lagging the performance of the U.S. broad-market S&P 500 and the blue-chip Dow Jones Industrial Average.
In all, nine of the 11 TSX subgroups were in positive territory for the quarter, indicating a degree of breadth to the gains.
Below, BNN Bloomberg takes a look at the TSX leaders and laggards for the quarter that was.
Industrials: +13.22 per cent
Utilities: +9.88 per cent
Materials: +8.76 per cent
Industrials led the way for the TSX, as investors looked to parse the impact on Canada’s economic reopening on the nation’s transport, construction and equipment makers. Utilities, which typically perform well in a low-rate environment due to their need to borrow capital to fund expansions and have a habit of paying steady dividends, took second spot with a nearly 10 per cent gain. The materials subgroup took third sport with a nearly nine per cent gain, with gold prices holding near a multi-year high due to global economic uncertainty. But it wasn’t just the precious metal that helped the subgroup, with some strength in copper lifting base metals producers amid speculation Chinese industrial activity was beginning to recover from the pandemic-induced demand destruction.
Trillium Therapeutics Inc.: +72.45 per cent
Pretium Resources: +50.00 per cent
Ritchie Bros. Auctioneers: +42.88 per cent
Trillium hasn’t just been a standout performer in the third quarter, it’s been the top performer on the TSX Composite Index so far this year, rising more than 1,000 per cent. The company, which develops cancer treatments for conditions including lymphoma, has seen encouraging results for some of it’s treatments, buoying investor enthusiasm. Trillium’s efforts haven’t gone unnoticed by some of the heavy hitters in the pharma industry, with Pfizer Inc. taking a US$25 million equity stake in the firm during the quarter. Trillium also raised $150 million in Q3 through a share offering.
The rising price of gold lifted all boats, but none more than single-mine operator Pretium. The company, which operates its Brucejack mine in north-west British Columbia, surged past analyst expectations in its most recent quarter. The rising price of bullion prompted Pretium to raise its full-year free cash flow expectations, based on an average gold price of US$1,800 per ounce. However, Pretium also warned that COVID-19 measures would raise costs as it looks to protect its workers and operations from the ravages of the virus. Pretium’s Brucejack mine is a sprawling claim with difficult geological hurdles and is seen as a potential acquisition target, with Barrick Gold Chief Executive Officer Mark Bristow having been reluctant to say the mining giant wouldn’t take a look at a potential tie-up.
Ritchie Bros Auctioneers:
Canada’s preeminent dealer of used industrial, farming and construction equipment has thus far weathered the pandemic-induced slowdown. Net income decreased a paltry two per cent in the company’s most recent quarter, even in the face of lockdowns and a drop in overall economic activity. There is, however, a degree of counter-cyclicality to Ritchie Bros results. As a middleman for the sale of second-hand equipment, the firm often benefits from customers seeking out deals on the second-hand market rather than shelling out for brand new equipment.
Health care: -14.44 per cent
Energy: -9.39 per cent
Communications services: +0.79 per cent
Trillium’s outsized gains weren’t enough to spare the health care sector from posting the weakest performance of the composite’s 11 subgroups in the quarter. Health care was hammered by some noticeable weakness in the cannabis sector as pot stocks continue to be punished for rocky performances. Energy’s rough ride continued, albeit with a disconnect from underlying energy prices. While individual stocks have been under pressure, crude oil prices have largely been in a holding pattern, with North American benchmark West Texas Intermediate hovering around US$40 per barrel as investors assess how the pandemic and subsequent economic reopenings impact the demand picture. Communications services has seen a bit of a mixed bag through the quarter, as Canada’s Big Three telcos spar with new entrants over wholesale network access rates and Cogeco battles a takeover offer from Altice USA and Roger Communications, which muddies the picture when it comes to overall performance.
Aurora Cannabis Inc: -63.07 per cent
Vermilion Energy Inc: -48.51 per cent
Enerplus Corp: -36.13 per cent
Aurora’s stock has been demolished amid persistent cannabis oversupply concerns. Shares in the company plunged more than 25 per cent in one trading session alone after the company disappointed investors with its fourth-quarter results as growing pains persist in the cannabis market. The firm was also chastised by MKM Partners, with their analyst calling on Aurora to stop growing so much cannabis as the market remains out of balance with consumer demand. The company says it expects to reach positive EBITDA (earnings before interest, taxes, depreciation, and amortization) by the second quarter of 2021, about 18 months later than earlier projected.
The geographically-diversified energy company, which operates not only in North American but also off the coast of Ireland and France, has seen its share price swing with the vagaries of international energy markets. Fund flows from operations, a key metric in the energy sector, plunged 52 per cent in the company’s most recent quarter as concerns over global energy demand mounted. Vermilion has also been hampered by price impacts from internal squabbling over production quotas for OPEC members and suspended its dividend in April.
The energy price pressures also took a toll on Enerplus in the third quarter. The company, which operates in Western Canada, North Dakota, Montana and Pennsylvania, posted a 13 per cent decline year-over-year in its most recent quarter, reflecting a troubled picture for overall consumer demand. Enerplus also booked significant impairment charges in the quarter, further hampering results.
Which top TSX gainer are you most likely to invest in?
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New COVID-19 outbreak at Vancouver care home where 13 died – Global News
Ten people have contracted COVID-19 at a long-term care home in downtown Vancouver that was the site of one of B.C.’s worst outbreaks of the disease last spring.
Vancouver Coastal Health declared a new outbreak in the special care unit of Haro Park Centre on Tuesday.
On Wednesday, the care home said one person who tested positive was in hospital, while nine others were being isolated on site.
Haro Park Centre CEO Robert Gillis said early indications are that an asymptomatic family member of a resident brought the virus into the facility.
Gillis said the home was notified about the case on Sept. 27 and isolated the resident, but that it had already been several days since the visit.
Nine of the 10 new cases were asymptomatic, he said.
During the facility’s first outbreak, 89 people contracted COVID-19 and 13 patients died.
That outbreak was declared over on May 30.
© 2020 Global News, a division of Corus Entertainment Inc.
American Airlines to start furloughing 19,000 workers – Jamaica Observer
NEW YORK, United States (AFP) – American Airlines will begin furloughing 19,000 workers from Thursday, the company announced, as US officials have failed to reach a deal on fresh aid to the pandemic-hit air travel sector.
US carriers that received billions in aid from Congress had promised to refrain from laying off workers until the end of September, setting the stage for potentially thousands of job cuts in October.
“Our elected officials have not been able to reach agreement on a Covid-19 relief package… As a result, tomorrow, we will begin the difficult process of furloughing 19,000 of our hardworking and dedicated colleagues,” CEO Doug Parker said in a letter Wednesday.
However, he sounded a note of hope saying that if lawmakers are able to hammer out a deal for new assistance, the furloughs would be cancelled and the affected teams recalled.
Since the coronavirus intensified in March, US airlines have been grounding planes and delaying jet deliveries to limit their cash-burn as air travel remains at about only one-third of its level a year ago.
Carriers have struck agreements with unions to spread out work among employees. Tens of thousands of employees have also accepted unpaid leave or early retirement packages to avert the need for involuntary terminations.
Still, the decisions will not be enough to avert all job cuts. Airlines have said they do not expect a full recovery until a vaccine is widely available, which company executives have said may not be until late 2021.
Unions have said 100,000 people or more could be laid off without additional federal aid, but analysts expect a smaller number than that as airlines and unions seek ways to avoid layoffs.
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