Wirecard gives up the ghost; Blackstone changes hiring strategy

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Wirecard filed for insolvency on Thursday, saying that it faced “over-indebtedness.” “It is the first insolvency of a member of Germany’s Dax index of blue-chip companies in its 32-year history,” the Financial Times said. “Wirecard shares, down 90% in the last week, were suspended for one hour shortly before the company’s announcement.” Financial Times, Wall Street Journal

Receiving Wide Coverage

Meanwhile ...

“Philippine authorities are searching for Wirecard’s former number two executive Jan Marsalek as part of a broader probe into the payments group, which is battling to survive [Editor's note: spoiler above] after acknowledging €1.9 billion was missing in a potential fraud,” the Financial Times reported. A German newspaper reported Tuesday that Marsalek, “who was fired as chief operating officer on Monday, may have traveled to the Philippines. Those sources told the German newspaper that Marsalek was not on the run but was trying to obtain documents that could help shed light on the matter.”

Wirecard claimed that two banks in the Philippines were holding the missing money, but both denied it and the country’s central bank said the money never entered the country.

Meanwhile, “SoftBank has come under renewed scrutiny about its investment strategy” after it was revealed this week that it “made a €900 million ($1 billion) investment in Wirecard last year as part of a broader tie-up between the two on digital payments,” CNBC reported. “That deal has raised eyebrows now due to a deepening accounting crisis at the German payments processor.”

While the Wirecard transaction “was structured in such a way that SoftBank took no financial risk whatsoever,” according to one securities analyst, it “highlights another big-ticket deal from the Japanese tech investment juggernaut that is now facing questions over due diligence. SoftBank’s notorious multi-billion investment in office rental firm WeWork — which saw its private valuation slashed from $47 billion to just $2.9 billion in a year — has clouded the company’s image.”

“The Wirecard scandal serves as a timely warning for regulators that have eased their rules to nurture startups into the next billion-dollar unicorn,” the Wall Street Journal writes. “German officials are under fire for failing to investigate—and even pushing back against—accusations that something was fishy in its accounts. Regulators seem to have been more cheerleaders for the former market darling than a watchdog.”

“There is a broader lesson for investors. Many European financial-technology or ‘fintech’ companies face little official oversight as regulators try to foster innovation and growth in a sector that promises to transform the way consumers spend, bank and save. That puts even more onus on shareholders than usual to know exactly what they own.”

The FT, which was at the forefront of disclosing possible improprieties at Wirecard as early as 2015, provides a timeline of “the rise and fall of a German tech icon.”

The Wirecard fiasco shows why short-sellers and hedge funds are important players in keeping companies honest when regulators don't. "They perform an important though rarely acknowledged function in rooting out corporate malfeasance through countless hours of detective work, often at great expense," Bloomberg Opinion columnist Chris Bryant writes.

Wall Street Journal

Youth movement

Blackstone Group, which has long relied on “plucking junior investment bankers already trained in spreadsheet and PowerPoint wizardry from firms such as Goldman Sachs and Morgan Stanley,” is planning to ditch that approach in favor of greater on-campus recruiting. “Under the new model, Blackstone will still recruit from banks but will do so on an as-needed basis and only after candidates have some experience.”

Colleges are already Blackstone’s “main source of talent,” but the asset manager now wants “to bring in more candidates directly from schools, including historically black colleges and universities and women’s colleges. Blackstone, which has been working for years to extend its campus reach, says it will directly recruit from 44 schools this academic year. That is up from just nine in 2015.”

Financial Times

Full disclosure

The Federal Reserve will release Thursday afternoon “an unprecedented amount of data and commentary on America’s top banks, with potentially far-reaching consequences for the institutions and their shareholders. Its trio of announcements includes the annual stress tests showing how the top 34 banks would fare in a hypothetical crash, and another exercise examining whether the top 18 should be allowed to execute their dividend plans.”

New York Times

Endangered species

“Rising seas and climate change are transforming a fixture of American homeownership that dates back generations: the classic 30-year mortgage,” the Times reports. “Home buyers are increasingly using mortgages that make it easier for them to stop making their monthly payments and walk away from the loan if the home floods or becomes unsellable or unlivable. More banks are getting buyers in coastal areas to make bigger down payments — often as much as 40% of the purchase price, up from the traditional 20% — a sign that lenders have awakened to climate dangers and want to put less of their own money at risk.”

“And in one of the clearest signs that banks are worried about global warming, they are increasingly getting these mortgages off their own books by selling them to government-backed buyers like Fannie Mae, where taxpayers would be on the hook financially if any of the loans fail.”

Quotable

“Conventional mortgages have survived many financial crises, but they may not survive the climate crisis. This trend also reflects a systematic financial risk for banks and the U.S. taxpayers who ultimately foot the bill.” — Jesse Keenan, an associate professor at Tulane University, discussing the recent trend among some banks to avoid making loans on coastal property.

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Wirecard Blackstone Recruiting Federal Reserve Stress tests Climate change Originations
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