Wirecard's Collapse: If Scandal Was the Cause, It Should've Come Down Long Ago
Wirecard's CEO Markus Braun stands trial on Dec. 8. But what if the company wasn't a victim of a corrupt C-suite; but rather, a total U-turn in social mood that prompted the events?
by Nico Isaac
Updated: December 07, 2022
On December 8, the global financial gallows will finally receive the long-awaited trial of former Wirecard CEO Markus Braun. This will be the first of 100 court dates at which Braun will face charges of accounting fraud, market manipulation, and all the other 7 dwarfs of shady, shifty, slimy and shrewd.
As France24.com explained on December 5, the biggest fraud trial in Germany's corporate history has one aim:
Determine "Braun's role in the collapse of the once celebrated payments firm.
"Wirecard, once hailed as a standard-bearer for the German tech industry, imploded spectacularly in 2020 after admitting that 1.9 billion euros ($2 billion) missing from its accounts probably didn't exist."
The actual inception of the scandal in question began on January 30, 2019, when the Financial Times published a 3-part exposé uncovering a string of "suspicious transactions" at Wirecard long enough to wrap around the Rhine Valley.
At the time, Braun clapped back, accusing the Financial Times of making up the story to collude with short sellers, while his second-in-command fled the country and is rumored to be hiding out somewhere in Russia with ties to spy organizations.
In turn, as scandals go, the 2019-20 Wirecard bombshell is nuclear. Since its reveal, Wirecard's stock has lost 100-plus% of its value and the company itself has gone bankrupt.
But here's the billion-euro question: If that scandal set Wirecard's collapse in motion, then why didn't it come crashing down long ago? Wirecard and controversy have gone hand and hand for the last decade, yet the tech giant's growth didn't skip a beat. To wit:
2010: Wirecard and Braun were accused of operating offshore shell companies dealing in illegal gambling ventures. In the ensuing 6 years, Wirecard's stock rocketed 6-fold.
February 24, 2016, an independent research firm exhumed these claims, along with a new laundry list of financial fraud and money laundering. Braun called his firm a "victim of baseless allegations" and Wirecard soared from 45 euros to 191 euros into August 2018.
January 2018: A 1000-page report by the Foundation of Financial Journalism (FFJ) claimed a "minimum of 175 million euros from Wirecard's purchase of an Indian-based payment processor did not go to the seller" while Wirecard's filings show the money "left its coffers."
Yet, none of these accusations stuck. In fact, Wirecard's value soon surpassed that of Deutsche Bank and the praises poured forth. On August 16, 2018 Handelsblatt said "Braun came to the German financial scene like a Holy Spirit... and is now regarded as the epitome of fintech."
Yes, for a decade, scandal slid off Wirecard as if it were made of Teflon. From the January 2018 FFJ report:
"Wirecard has had the good luck of a boxer who is a master of bobbing and weaving in the ring, making it difficult for an opponent to land a punch."
"A combination of short sellers, journalists, and forensic research consultancies have publicized a long list of concerns about Wirecard's operations, to little avail."
So, why did the 2019-20 "punch" finally land across Wirecard's cheek, bringing it face down for the count?
It wasn't a change in luck at all.
The answer is a wildcard that the mainstream simply wasn't equipped to see. Yet, by tracking the stock's Elliott wave pattern and sentiment, we foresaw the upcoming reversal back in September 2018.
The waves of social mood suggested that it had reached the end of a near-20-year-long uptrend at the late August 2018 peak of Wildcard's stock. In our September 2018 European Financial Forecast, we revealed that Wirecard was the posterchild for an extreme optimism for the Fintech sector as a whole; and one that was nearing its saturation. From EFF:
"In fact, so many mania symptoms plague the [Fintech] sector that the sell-off could be catastrophic. Take, for instance, the soaring valuations and ever-accelerating growth forecasts across the industry. In one of the most potent signs of optimism to date, Wirecard, a 19-year-old German payments processor, just surpassed Deutsche Bank in terms of market capitalization.
Wirecard replaced Commerzbank in the DAX in September 2018, just in time for its stock to come tumbling 60% down into March 2019. In our March 2019 European Financial Forecast, we observed the many efforts by Europe's financial regulators to stem the bleeding, such as the first-ever short-selling ban on a single stock. Our analysis foresaw the futility in such measures. We showed this chart of Wirecard, and prepped the stage for an 80% collapse to the area of the prior fourth Elliott wave (dotted line):
The March 2019 European Financial Forecast also anticipated a painful reckoning for the former heroes of the old bull market:
"Investors are getting an early look at the basic storyline that will unfold across some of Europe's largest and seemingly most stable companies. The financial technology bubble has popped, but as former executives at Bear Stearns, Enron, Lehman Brothers, Northern Rock and WorldCom previously learned, a far more treacherous phase of the bear market awaits....
"As negative social mood sets in, the financial misdeeds that went unreported during the preceding bull market get uncovered, and the inevitable fiscal chaos begins."
From there, Wirecard's fate went from worse to bankrupt, alongside an unraveling of the broader fintech sector. In the July 2020 European Financial Forecast, we widened the aperture for what's to come:
"Only a social mood reversal of historic proportions can account for the evaporation of a company that employed 6,000 people and earned €2 billion in revenue as recently as 2018. The collapse blindsided the conventional experts as well.
"The spotlight is on Germany for now, but give it time. The Wirecard debacle will actually get overshadowed by far larger accounting scandals in the months and years ahead."
In the 2-plus years since, that's exactly what's happened, as the once erect C-Suite exec dominos from biotech to blockchains come crashing down. (Think: Everyone from Elizabeth Holmes to Sam Bankman-Fried).
However Markus Braun's trial turns out, the verdict is in on the power of social mood to create financial heroes on the way up, only to destroy them on the way down.
Find out where the tides are set to turn next in the leading equities and economies of Europe today!
See the Sea Changes BEFORE They Happen
From Wirecard's collapse to soaring bond yields, our European Financial Forecast has been one step in front of the sea changes that have shocked Europe's economy.
And this is only the beginning...
Subscribe to our complete European Financial Forecast Service and see where the biggest waves will rise... and fall, in the weeks, months, and years to come.
In this clip from our Commodity Pro Service, editor Jim Martens highlights a "classic" Elliott-wave setup that can lead to a high-confidence trend change. In Jim's words, "A classic bearish reversal sequence I always mention. I want to see this before I'm confident that the trend has changed." The good news, you can apply this lesson to any market!
Ray Charles. Elvis. James Brown. Chuck Berry. These four pop music icons need no introduction. Music historians have told their individual stories many times. But when we zoom out and look at their careers collectively, we see the indelible influence of social mood on their bouts of triumph and tumult.
Sentiment indicators can help you anticipate huge turns in financial market trends. See exactly what Short Term Update subscribers saw at the start and the end of a two-year move in the Dollar Index.