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Wirecard’s Merchant Cash Advance Scam in Brazil & Turkey

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In November 2018 Wirecard claimed it had launched a new Merchant Cash Advance (MCA) Product and in both May and June 2019, Wirecard told analysts that at least 33% (€133M) was in Turkey and Brazil. Earlier statements in March, and May, have repeatedly said that the bulk of the programme is in Brazil, with some also in Asia and Europe. In August 2019, Wirecard mis-remembered their earlier statements, and told analysts that they had previously stated MCA was less than 33% in Brazil and Turkey. Overall lending shrank to €370M.

We have seen Wirecard’s own accounts for both Brazil and Turkey. In both countries, MCA lending would appear negligible or non-existent. And in Turkey, it’s illegal, suggesting if there is any MCA lending, this is a separate problem in itself. More details for both Brazil and Turkey are available. But at its simplest, any firm with a meaningful MCA programme would see this reflected on the balance sheet as significantly more receivables than payables at any given moment and neither Brazil nor Turkey have anything like this.

As of 31 December 2019, the outstanding balance in the Wirecard Brazil FIDC (Wirecard’s regulated receivables fund) was R$32.3M. This translates to about €7.2M. In fact, this number has been fairly consistent for months. In 2018, when Wirecard first claimed to be pre-funding receivables in Brazil, this facility had not been set up. It does now exist, but lending volumes are very small.

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The lies keep piling up. There’s no meaningful MCA lending in Turkey, and what there is, is illegal. Similarly, there’s close to zero in Brazil. So where is this €133 million? Are they lying about it to mask a lack of cash flow?

Wirecard claims that at least 1/3 of its supposed €400M MCA program comes from Brazil and Turkey, with Brazil being the larger. Nonetheless, Wirecard is claiming that there is at least some meaningful lending, and subsequent revenue, from this business in Turkey.

WRONG!

Wirecard Turkey’s own audited (by Deloitte) financials shows that the MCA business there is tiny. As notable, in the entire report, there is not a single mention of MCA.

Illegal Lending in Turkey?

As it turns out, MCA lending is illegal in Turkey. View legal opinion showing wirecard’s mca product is illegal in Turkey.

Our work on the ground in Turkey suggests Wirecard are offering some small volumes of MCA to wireless carriers and mobile app vendors. The lack of disclosure in this audited report suggests they are misleading both Deloitte and the Turkish Banking Regulator (BRSA). Revenues and TPV in 2018 were only €2.4m / €61m which shows the business can only support tiny volumes of MCA – but this is not disclosed in the annual report.

We have informed the banking regulator in Turkey (BRSA) and we believe they will be looking into this imminently.

KPMG and the Supervisory Board

We have written several letters to the Wirecard Supervisory board highlighting our concerns and have called for the management board to be suspended to protect shareholder assets. Wirecard’s own filings confirm that management’s statements in 2018 and throughout 2019 about MCA were, and remain, false. KPMG and the Supervisory Board will easily see that in the accounts. But we reiterate our earlier question, “why are they misleading investors about MCA lending?” Our answer to this remains consistent: to hide something.

We believe Wirecard management are concealing a substantial overstatement of profits at CardSystems Middle East, Wirecard’s un-audited Dubai subsidiary, whose client transactions bear hallmarks of being fake/fraudulent. These dubious “clients” have contributed 58% of Wirecard AG profits in 2018.

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Holvi Mastercard temporarily suspended due to Wirecard insolvency

Wolfgang Holzem

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Holvi Mastercard has been temporarily suspended due to recent events in connection with the insolvency of Wirecard AG

How did this happen?

The UK Financial Conduct Authority (FCA) has suspended service for Wirecard Card Solutions Ltd (WDCS) earlier today. WDCS is a subsidiary of Wirecard AG and issues the Holvi Business Mastercard. This decision was taken by the FCA without any prior notice.

What does this mean for you?

All other functions of your Holvi account are still fully available. You can still invoice, receive and transfer funds. Please be assured that all Holvi customer accounts and funds remain safe, secure and accessible at all times – no Holvi accounts have been impacted by this event. This is because all Holvi customer funds are segregated and held in separate accounts in European banks in Finland, Sweden, Denmark, the UK and France.

No customer funds are held by Wirecard AG. Your money and Holvi account are safe.

Your trust is our top priority. We’re actively working on a solution and will continue to update as soon as possible.

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Wirecard Board wants to continue Business in the UK and discussion are ongoing with the FCA

Wolfgang Holzem

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The payment processor struggling to survive a balance sheet scandal Wirecard, continues to do business despite the application for bankruptcy. “The board is of the opinion that a continuation is in the best interest of the creditors,” said the Dax group on Saturday in Aschheim near Munich.

The management board made an application for the opening of insolvency proceedings for Wirecard AG last Thursday.

According to the company, the examination of whether insolvency proceedings will be opened continues.

The business operations of the group companies including the licensed units are currently being continued, it said. It is constantly checked whether bankruptcy applications for subsidiaries of the Wirecard Group must also be made. Group companies, with the exception of a small development branch, have currently not filed for bankruptcy.

The Wirecard Bank is currently not part of the bankruptcy proceedings, the payment transactions of the Wirecard Bank are not affected, the company emphasized. Payments to Wirecard Bank merchants would continue to be carried out without restrictions. They are also “in constant communication with the credit card organizations”.

Wirecard Card Solutions has interrupted business

Wirecard Card Solutions Limited, based in Newcastle, “has interrupted its business due to an order from the responsible Financial Conduct Authority,” it said. However, Wirecard hopes to be able to continue operations in the UK with its current global B2B clients.

Current B2B clients include Payoneer, Hovi, Curve.

Measures for this are discussed currently with both the UK and German authorities.

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Deutsche Bank is considering taking over Wirecard Bank

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At the beginning of the week it still looked as if Wirecard’s Bank would also go into bankruptcy because too much customer money had meanwhile flowed out – now it is becoming clear that Deutsche Bank could take over in whole or in part. The Bank is examining possible financial aid in coordination with BaFin, the insolvency administrator of Wirecard AG and the management board of Wirecard Bank, a spokesman said.

According to German media reports, at least one financial investor has also expressed an interest in Wirecard Bank.

The financial supervisory authority Bafin had appointed the Bundesbank as a special representative at Wirecard Bank, who should ensure that no funds flow to Wirecard AG and that business continues.

Wirecard Bank has a full banking license and can offer all financial services. Since the beginning of the year, it has been promoting 0.75 percent interest on checking deposits on the “Boon Planet” banking app, while other institutes hardly pay any interest or even charge fees for fixed deposits.

If the bank had gone bankrupt, the deposit guarantee fund of the private banks would have compensated customers who did not withdraw their money on time.

On the balance sheet, Wirecard Bank is not a heavyweight. According to internal sources, at the end of March it had total assets of 1.6 billion euros, which roughly corresponds to a medium-sized savings bank. The equity at the end of the quarter was 205 million euros and he bottom line was a surplus of 4.7 million euros at the end of the quarter, after 40.8 million in the same quarter of the previous year.

What motives drive Deutsche Bank is still unclear. “We are one of the largest banks in the payment traffic worldwide and that is one of our strengths, a real core business area,” Deutsche Bank board member Fabrizio Campelli told Handelsblatt in an interview published on Friday and “if there are opportunities to strengthen ourselves, we will look at them.”

Deutsche Bank may be targeting Wirecard Bank’s corporate customers in payment transactions, although the first have already turned away. Since the beginning of July, for example, the discounter Aldi Süd has no longer processed credit card payments through the insolvent payment service provider, but through the provider Payone, as the company explained on Thursday. 

The cooperation with Wirecard Bank has since been limited to business with the Aldi gift card. But this has no consequences for customers.

The connections between Wirecard and Deutsche Bank are complex anyway. Last year, on the initiative of the Wirecard Group, there were even informal merger talks with Deutsche Bank, which, however, broke off quickly as Bloomberg news agency reported first. In addition, the bank temporarily granted company founder Markus Braun a private loan of EUR 150 million secured with Wirecard shares.

In addition, one of the auditors, who was responsible for checking the Wirecard balance sheet at EY in 2017, switched to Deutsche Bank in 2018 as chief accountant.

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