By Douglas Busvine
BERLIN (Reuters) - Wirecard's confirmation that $2.1 billion it had booked in its accounts likely never existed raises questions over whether the company is able to survive as a going concern or can be broken up and sold.
At a stroke, the acknowledgement wiped out a decade of reported cash flows and corroborated earlier reports that Wirecard relied on obscure third-party partners for much of its reported profits, according to financial analysts and forensic accountants.
Putting a value on Wirecard amounts to a complete stab in the dark, even if it does have customers and a technology platform that works, according to industry experts. For competitors, there is no compelling reason to scoop up any viable parts of Wirecard's operations because it would be easier to grab its customers, they said.
"We are unable to quantify the true profile of the business with conviction," said Robert Lamb at Citi, who has suspended his target price for Wirecard stock.
Even if Wirecard can navigate the current turmoil, it will be hard to restore confidence, added Lamb. That would require it to be rebranded and a new management team to be drafted in - both unlikely to happen soon, he said. The company replaced its chief executive last week with James Freis, an ex-compliance officer at Germany's stock exchange.
Moody's on Monday withdrew its rating on Wirecard - cut to junk only last Friday after CEO Markus Braun quit - citing insufficient independently verifiable information.
Shares in Wirecard, a one-time German financial technology star, fell 39% on Monday, bringing cumulative losses since Thursday to 85%. Its only listed bond, due in 2024, was last bid down 9 cents on the euro at 26 cents.
In the absence of credible accounts, analysts look to cash. Here, an earlier hole of 1 billion euros found by KPMG in a special audit has grown to 1.9 billion euros ($2.1 billion) for 2019, according to in-house auditor EY, after balances reported in the Philippines were exposed as fictitious.
Neil Campling at Mirabaud, the only analyst to have had a price target of zero for Wirecard, sees no way back. He sees the firm at imminent risk of having its licences revoked by Visa and MasterCard, whose payments it processes.
MasterCard declined to comment while Visa did not respond to a request for comment.
"They have no business if Visa and MasterCard revoke their licenses, which I expect to happen," Campling told Reuters. "Customers, the few that are real, will seek alternative payment providers."
Campling sees no equity break-up value due to the prior claims of debt holders and litigation risks. "It is beyond salvageable in my view," he said.
Richard Sbaschnig, a forensic accountant at CFRA, said it was in the interest of creditor banks not to force Wirecard into bankruptcy because that would destroy any residual value left in customer relationships and payment contracts.
"The banks could be better off giving the company more time and see if parts of the company can be sold or operated profitably to repay them," he added.
The problem is that there are no obvious acquirers among Wirecard's competitors.
Dutch payments platform Adyen has a strong business among large corporates, but prefers to steer clear of the struggling airlines sector - a core clientele of Wirecard.
"We view Adyen as very well-positioned to capture existing Wirecard customers that could seek to leave Wirecard," said Julian Serafini at Jefferies, adding Adyen has long preferred organic growth to acquisitions.
France's Worldline, meanwhile, would also likely find it easier to scoop up Wirecard customers in Europe, and would have little interest in Wirecard's Asian interests, analysts said.
A deal involving Italy-based rival Nexi would make little sense as it has no ambitions to expand abroad, they added.
Adyen declined to comment while Worldline and Nexi did not immediately respond to requests for comment.
($1 = 0.8917 euros)
(Reporting by Douglas Busvine; Additional reporting by Toby Sterling in Amsterdam; Editing by Pravin Char)