Entrepreneur Wirecard and Greensill, these two bankruptcies cast a shadow on fintech

Wirecard and Greensill, these two bankruptcies cast a shadow on fintech

With Wirecard and Greensill, the financial world has just been shaken by two disturbingly similar bankruptcies that cast a shadow over finance start-ups. At first glance, the payments specialist, who saw himself as the flagship of German fintech, and the British factoring company, which wanted to become “Amazon of working capital”, have nothing to do with and the reasons for their fall are indeed distinct.

Wirecard took advantage of an opaque network of intermediaries in Asia and the Middle East to inflate its accounts by 1.9 billion euros in the face and beard of its auditors, recalling the accounting fraud of Enron. Greensill, who used to finance invoices from industrial suppliers for resale to investors, has been overtaken by his dependence on a client, steel tycoon Sanjeev Gupta, and partly imaginary contracts.

But on closer inspection, the two bankruptcies share several common traits. ” I don’t know if I would put Wirecard and Greensill in the fintech category, says Jean Dermine, professor of banking and finance at Insead (European Institute of Business Administration). But in both cases, we are dealing with fast-growing companies with a lot of opacity and therefore certainly naivety on the part of investors and an irrational aspect in their valuations.

Credit Suisse at the heart of both businesses

Wirecard was riding the booming payment and e-commerce sector. Enough to display annual growth rates of 30%, like its competitors, the Dutch Adyen or the Californian Stripe. Greensill partially made up for banks’ withdrawal from factoring and claimed 100% growth between 2015 and 2019, when he raised € 1.5 billion, mostly from SoftBank.

The Japanese conglomerate can also be found in Wirecard, from which it had bought convertible bonds for 900 million euros. He was then advised by Credit Suisse, which we find again in the Greensill file on several levels. Its asset management division bought it back several billion euros in receivables, while its corporate bank granted it a loan of 140 million, against the advice of risk analysts, probably hoping to obtain the future mandate of its initial public offering.

We are in a classic case of conflict of interest between the divisions of a universal bank », Emphasizes Jean Dermine. Since then, the Swiss bank has been splashed by the collapse of Archegos, the “hedge fund” that it has financed (alongside other banks) and which could cause it losses of more than 3 billion dollars. The group’s risk management is now in the sights of investors.

In the case of Wirecard and Greensill, regulation also seems to have shown its limits. Payment and factoring, once considered boring and now seen as drivers of innovation in finance, are not as tightly regulated as banks. And both Wirecard and Greensill Bank, Greensill’s banking subsidiary, were overseen by the German financial policeman, who ignored the red flags.

Charismatic Patrons and Influential Advisors

Perhaps more concerned about the future of a DAX flagship worth up to 24 billion euros and offering a modern image of the German financial sector, weighed down by the woes of Deutsche Bank, BaFin, the German regulator, s ‘is systematically sided with the management of Wirecard, when the “Financial Times” suspected the fintech of manipulating its accounts. She also did not react in time to the six-fold increase in Greensill Bank’s balance sheet between 2018 and 2019.

Dazzling growth, risk-taking investors, faulty regulation… But a fourth common ingredient has contributed to the meteoric rise and then the fall of these fallen stars: men. Sometimes taking himself for Steve Jobs, the boss of Wirecard, Markus Braun, had built an image of fintech guru. He is now in prison. Australian Lex Greensill has shaped his business around his personality, described as visionary, daring and full of charm.

To establish their credibility, the two charismatic bosses have also surrounded themselves with prestigious advisers. Now a lawyer, former German Defense Minister Karl-Theodor zu Guttenberg pleaded Wirecard’s case with Angela Merkel before the Chancellor’s trip to China, where her client wanted to grow. In exchange for future shares in the company, former British Prime Minister David Cameron accompanied Lex Greensill to Saudi Arabia’s Crown Prince Mohammed bin Salman and worked for Greensill under British Finance Minister Rishi Sunak.

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