Wirecard Lenders On The Hook For Millions

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Wirecard AG’s bankruptcy filing is not just having an impact on the once bright German payments company — its insolvency has left a huge gap in European banks’ income statements, Bloomberg News reported.

Three of the biggest lenders to the FinTech leader have filed earnings reports so far, and all declared losses due to Wirecard.

Frankfurt-based Commerzbank AG and ING Group in the Netherlands each took a hit of €175 million ($207 million), more than half of their profit for the second quarter, sources told the news service.

Credit Agricole, the French financial institution, suffered a loss of about €110 million ($130.6 million).

Wirecard, once valued at $28 billion, filed for insolvency in June after admitting that €1.9 billion ($2.1 billion) said to have been deposited in two Philippines banks did not exist.

Prosecutors arrested former Wirecard CEO Markus Braun and two other executives on suspicion of orchestrating a criminal enterprise to inflate revenue and balances to hide billions in losses.

The three banks are among the 15 financial institutions behind a €1.75 billion ($2 billion) lending facility to Wirecard that had just 10 percent remaining when the company collapsed, Bloomberg reported.

Other large lenders that provided cash to Wirecard include the Dutch-based ABN Amro Bank NV and Landesbank Baden-Wuerttemberg in Stuttgart, Germany, with an estimated exposure of about €180 million ($214 million) each. London’s Barclays Plc, DZ Bank AG in Frankfurt and Lloyds Banking Group Plc of London lent about €110 million ($131 million) each.

Last month, The Wall Street Journal reported some European lenders expect to recover as little as 20 percent of the nearly $2 billion they are owed. Wirecard’s debt includes €1.75 billion ($2 billion) in revolving credit from the 15 lenders.

For example, Lloyds Banking Group PLC’s debt 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 ($229 million), but the sale fell through, the report said.

Also in July, German Finance Minister Olaf Scholz and Economy Minister Peter Altmaier faced hours of questioning by Parliament over allegations they failed to prevent the Wirecard AG accounting scandal.

Scholz stuck to his previously stated defense that no mistakes had been made.

“It was a good, necessary discussion with many details,” Scholz told reporters after the closed-door hearing.

As a result of the alleged misconduct, one of the biggest in post-war history, Scholz said financial oversight must be strengthened and auditing rules reformed.

He noted that Ernst & Young, a big, internationally renowned accounting firm, had not detected the irregularities at Wirecard for many years.