Wirecard's wild week finally ends in insolvency filing

Wirecard management cited over-indebtedness as the reason behind the decision to seek court protection in Munich, according to a statement. The company also said it's considering whether the insolvency proceedings should be applied to its subsidiaries.

Wirecard Bank is not included in the proceedings, according to a person familiar with the matter, who asked not to be named, as the situation is private. German regulator BaFin is responsible for deciding whether a bank should file for insolvency, although there are also other measures it can take when a lender runs into trouble.

Until earlier last week, Wirecard was still a hot growth story that had shaken off allegations of accounting fraud. Then came the admission that 1.9 billion euros of company funds had gone missing. Shares and bonds collapsed and in less than a week, the company once hyped as the future of German finance saw its Chief Executive Officer Markus Braun resign and then be arrested in an accounting-fraud probe, after almost two decades at the helm of the company. Braun has since been released on bail.

Wirecard's shares plunged further on Thursday, dropping 80% to 2.50 euros in Frankfurt after trading resumed. Its 500 million euros of bonds due 2024 fell 6 cents on the euro to a record low of 12 cents, according to data compiled by Bloomberg.

The insolvency proceedings now leave Wirecard's creditors facing lengthy negotiations with court-appointed administrators over how much they'll get back out of the money they're owed. Banks who lent to Wirecard, including Commerzbank, ABN Amro, LBBW and ING, have been demanding more clarity from the company in return for the extension of almost $2 billion in debt.

Holders of 1.4 billion in euro bonds and convertible debt also stand in line to try to recoup at least a potion of their money. The company's euro notes due in 2024 traded at a record low of just 12 cents on the euro on Thursday.

The banks hired FTI Consulting and Allen & Overy as advisers. Wirecard has retained Houlihan Lokey Inc.

The insolvency also raises questions on the future of Wirecard's licenses. The company has licenses with Visa, Mastercard and JCB International, through which its banking arm issues credit cards. If Wirecard is unable to find the missing cash, Visa and Mastercard may have cause to revoke the licenses.

"The big question is whether they retain the Visa and Mastercard licenses," Neil Campling, analyst at Mirabaud said. "Without those they have no business."

For Germany, the affair represents an embarrassment. While the country has seen the likes of airline Air Berlin and renewable-energy firm Solarworld file for insolvency in past years, critics say that Wirecard's troubles could have been spotted earlier.

Wirecard's spectacular fall from grace is a first in recent history for a DAX-listed company since Hypo Real Estate was saved from collapse by a government bailout during the last financial crisis more than a decade ago.

Germany's financial regulator Bafin has come under intense pressure for its handling of the scandal and the company's collapse is already prompting calls for a parliamentary inquiry into the government's responsibility.

Fabio de Masi, a member of the German Bundestag said "if the biggest stock market crash in German history can take place under the eyes of the Bafin, then heads must roll. Should Felix Hufeld, the head of BaFin, not be able to dispel doubts about the supervision, it is questionable whether he can remain head of the supervisory authority."