Deutsche Bank and Commerzbank provided most of the financing for Wirecard acquisition of a pair of Indian companies mentioned in fraud allegations against the defunct German payments group, documents viewed by the Financial Times reveal.
In 2015, Wirecard turned to German banks when it agreed to pay up to € 340 million to a Mauritius-based fund for two sister companies based in India, Hermes i Tickets and GI Technology. The seller, nicknamed Emerging Markets Investment Funds 1A, had acquired the targets a few weeks earlier from their original owners for less than 40 million euros.
Wirecard said he never verified who the ultimate beneficial owner of EMIF 1A was, and forensic investigations by the big four accounting firms EY and KPMG subsequently failed to find out. .
The unusual sequence of events, the sharp increase in the purchase price and the lack of clarity of the seller’s ownership lead to allegations of money laundering and embezzlement.
An Indian Wirecard employee in 2016 tell EY auditors that the “top management” of the German group was behind EMIF, and EY fraud investigators later referred to “clues” that Wirecard’s COO, Jan Marsalek, was behind EMIF, according to documents consulted by the FT. Mr Marsalek, who is a fugitive and listed on Interpol’s most wanted list, has consistently denied the allegations.
According to documents seen by the FT, Deutsche Bank and Commerzbank have granted loans of 125 million euros each to Wirecard for the purchase. The loans underscore the support Wirecard has enjoyed from some of Germany’s largest financial institutions during its meteoric rise.
By the end of 2015, Wirecard’s market capitalization had climbed to 5.7 billion euros, and it peaked at over 24 billion euros in 2018. Hailed for years as a rare German tech success, the company collapsed in June after revealing that large parts of its operations in Asia were a sham.
People familiar with the deal told the FT that the two loans of € 125 million were bridging loans, lasting around a year. The loans were repaid by Wirecard long before the company went bankrupt, the people added.
Prior to Wirecard’s insolvency, the two German lenders were part of a consortium that provided a revolving credit facility of € 1.75 billion to the payment group, which was 90% drawn. While Deutsche Bank’s exposure amounted to € 80 million, that of Commerzbank was 200 M €. In 2019, Wirecard also raised € 1.4 billion via bonds after receiving an investment grade rating from Moody’s.
A person familiar with Deutsche Bank’s 2015 decision to fund the Wirecard deal in India said that at the time, Germany’s largest lender was unaware that the target was acquired from an intermediary who had only paid a fraction of the purchase price a few weeks earlier.
The first public report on the unusual circumstances of the deal was published by the Foundation for Financial Journalism in early 2018, about two years after the deal was announced.
Those familiar with M&A finance have said that when providing bridging loans, banks tend to focus their due diligence on the buyer’s creditworthiness, rather than the identity of the seller or the quality. of the target. However, banks normally have access to the buyer’s own due diligence documents, which, according to a special audit by KPMG of the India deal, found that EMIF previously paid a much higher purchase price. low.
Fabio De Masi, MP for the far-left Die Linke party in Germany, said it was “surprising to see the banks’ lack of interest in the plausibility of the purchase price and the ultimate beneficial owner of EMIF funds “. The 250 million euros provided by Deutsche and Commerzbank “is a lot of ‘stupid German money'”, he added.
Deutsche Bank also had a separate business relationship with former Wirecard CEO Markus Braun, who at the end of 2017 borrowed 150 M € of the bank and pledged half of its shares in the company as collateral. Two years later, at the end of 2019, Deutsche Bank terminated the loan, forcing Mr. Braun to refinance it first via Wirecard Bank then via OLB, a small private lender.
Deutsche Bank and Commerzbank declined to comment on their lending relationship with Wirecard, citing customer confidentiality rules.