Deutsche Bank and Commerzbank provided the bulk of the funding for Wirecard’s acquisition of a pair of Indian companies referred to in the fraud allegations against the defunct Germany payments group, documents seen by the Financial Times reveal.
In 2015 Wirecard turned to the German banks when it agreed to pay up to €340m to a Mauritius-based fund for two India-based sister companies, Hermes i Tickets and GI Technology. The seller, dubbed Emerging Markets Investment Funds 1A, had acquired the targets just weeks earlier from their original owners for less than €40m.
Wirecard said that it never checked who was the ultimate beneficial owner of EMIF 1A, and forensic investigations by Big Four accounting firms EY and KPMG later failed to uncover this.
The unusual sequence of events, the stark increase in purchase price and the unclear ownership of the seller lead to allegations of potential money laundering and embezzlement.
An Indian Wirecard employee in 2016 told EY auditors that “senior management” of the German group was behind EMIF, and EY fraud investigators later referred to “hints” that Wirecard’s then-chief operating officer Jan Marsalek was behind EMIF, according to documents seen by the FT. Mr Marsalek, who is a fugitive and on Interpol’s most-wanted list, always denied those allegations.
According to documents seen by the FT, Deutsche Bank and Commerzbank provided loans of €125m each to Wirecard for the purchase. The loans underline the backing Wirecard enjoyed from some of Germany’s biggest financial institutions during its meteoric rise.
By the end of 2015, Wirecard’s market capitalisation had climbed to €5.7bn, and it went on to peak at more than €24bn in 2018. Hailed for years as a rare German tech success, the company collapsed in June after disclosing that large parts of its operations in Asia were a sham.
People familiar with the transaction told the FT that the two €125m loans were bridge loans, which had a duration of about a year. The loans were repaid by Wirecard long before the company went bust, the people added.
Prior to Wirecard’s insolvency, both German lenders were part of a consortium that provided a €1.75bn revolving credit facility to the payments group, which was 90 per cent drawn. While Deutsche Bank’s exposure stood at €80m, Commerzbank’s was €200m. Wirecard in 2019 had also raised €1.4bn via bonds after receiving an investment-grade rating from Moody’s.
A person familiar with Deutsche Bank’s 2015 decision to finance the Wirecard deal in India said that, at the time, Germany’s largest lender was not aware that the target was acquired from a middleman that had paid just a fraction of the purchase price only weeks earlier.
The first public report about the deal’s unusual circumstances was published by the Foundation for Financial Journalism in early 2018, some two years after the deal was announced.
People familiar with mergers and acquisitions financing said that when granting bridge loans, banks tend to focus their due diligence on the solvency of the buyer, rather than the identity of the seller or the quality of the target. However, the banks normally have access to the buyer’s own due diligence documents, which according to a KPMG special audit into the India deal, disclosed that EMIF had earlier paid a much lower purchase price.
Fabio De Masi, an MP for Germany’s far-left Die Linke party, said it was “surprising how little interest the banks showed in the plausibility of the purchasing price and the ultimate beneficial owner of the EMIF funds”. The €250m provided by Deutsche and Commerzbank “is quite a lot of ‘stupid German money,’” he added.
Deutsche Bank also had a separate business relationship with former Wirecard chief executive Markus Braun, who in late 2017 borrowed €150m from the bank and pledged half of his shares in the company as collateral. Two years later, in late 2019, Deutsche Bank terminated the loan, forcing Mr Braun to refinance it first via Wirecard Bank and then via OLB, a small private-equity owned lender.
Deutsche Bank and Commerzbank declined to comment on their lending relationship with Wirecard, citing client confidentiality rules.