3MTB Newsletter - The curious case of missing $ 2.1 Billion; Olympus has fallen

Jun 24, 2020

Well, I was initially planning to write in this edition about updates from Apple’s annual World Wide Developer Conference (WWDC). But, when a scandal hit one of the largest tech companies in Europe early this week, I thought this needs one entire edition of newsletter. Not many in India knew about Wirecard. It even has a small Indian subsidiary based out of Chennai.

This is one scandal of our modern times, that will hit the reputation of one of the Big 4 auditing companies and the European tech industry. Today’s Bytes section is entirely devoted to Wirecard.

Some Bits,

Olympus has fallen. The writing was on the wall. After 84 years, camera maker Olympus has decided to quit the camera business to focus on medical devices.
NBA is offering a ‘smart’ ring to all its players to track COVID-19 symptoms. Critics are skeptical about the accuracy and the depth of information provided by the ‘Oura’ ring manufactured by a Finnish company Oura.
Apple has obtained a patent for a group selfie software even while users maintain social distancing. The software would arrange people from multiple images and remove individual background. The patent was originally filed in 2018.
Microsoft will soon roll out the personal version of Teams. The preview will be rolled out in the mobile apps (both Android & iOS), and the full set of features will be rolled out in the coming weeks.
Yatra.com lays of 400 employees, after 600 employees are furloughed.

Bytes,

What is Wirecard?

Wirecard is a German head quartered FinTech (Financial Technology) founded in 1999. It provides payment processing services, has banking licenses, issues virtual cards and has multiple mobile payment services.

In 2018, Wirecard boasted of €22.5 billion in market capitalization, more than that of Germany’s Commerzbank, which it replaced in the DAX 30 (Stock index of Germany’s 30 big companies).

What happened?

Early this week, auditing company EY revealed a large hole of Euro 1.9 billion ($1.2 billion) in the company’s finances. Nobody knows whether the money ever existed at all, with one theory that it has been routed to Philippines. The country denied that such a huge money has ever entered its financial system.

Markus Braun, the CEO of the company, is fired and is now arrested for inflating the finances. Jan Marsalek, the COO, just could not be found and is believed to be in Philippines.

The company’s stock value plummeted from above 100 EUR to 1 EUR in just 3 trading sessions. It is more likely that the company will become insolvent.

Impact to European Tech Industry

This is a huge blow. Since Europe never had a Silicon Valley equivalent and literally no customer facing tech giants, Wirecard was its much celebrated darling. So even when the short sellers were betting against the company, there were lots of naysayers until the CEO himself admitted the big hole.

All is not lost, as lenders have requested experts to restructure the company

Who else is impacted?

Ernst & Young (EY)
Well, as a reputed auditing company, you just cannot declare a massive hole out of the blue. Other than reputation issues, the auditing company will now also face legal suits from Wirecard’s investors and lenders.
Softbank
The cup of woes never seem to end for Softbank. The company has invested up to $1 billon in Wirecard. Though Wirecard is one of the smaller investments, this is sure to raise questions after Softbanks debacle with WeWork, Uber and OYO.
Employees of Wirecard
Should I explain more?

Till the next edition of the newsletter.. Stay Home, Stay Healthy, Stay Safe

Best

-SK