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Wirecard’s Braun Has to Unwind Shares Pledged as Collateral

Eyk Henning and Steven Arons

(Bloomberg) -- Wirecard AG’s former boss Markus Braun is unwinding a large portion of the shares he owns in the embattled payments processor, a stake he financed by borrowing against the stock’s value, according to a person familiar with the matter.

Former Chief Executive Officer Braun, who held 7% of Wirecard’s shares to rank as the company’s biggest shareholder, had funded his purchase through a 150 million-euro margin loan that was secured by the value of the underlying stock. Wirecard’s shares plunged 72% last week after billions in cash went missing, triggering a liquidation of the shares Braun had pledged as collateral, the person said, asking not to be identified because the information hasn’t been publicly disclosed.

Named CEO in 2002, Braun has put tens of millions of euros of his own funds into the firm and owned 8.7 million shares of Wirecard as of June 19, according to data compiled by Bloomberg. In late 2017, Braun secured a loan by pledging 4.2 million shares, or just under half of his personal stake, a regulatory filing shows. The original loan 150 million-euro loan was provided by Deutsche Bank AG, which has since gotten rid of the loan, according to people familiar with the matter.

Braun declined to comment, as did a spokesman for Deutsche Bank.

Wirecard, once heralded as the future of Germany’s finance industry, abruptly fell from grace after accusations about the company’s accounting culminated in a disclosure that it was unable to locate 1.9 billion euros ($2.1 billion), or about a quarter of its balance sheet. It subsequently withdrew its fiscal 2019 and first-quarter 2020 financial results after saying those funds on its balance sheet doesn’t exist.

The stock collapsed, Braun resigned and the company is facing a cash crunch as loans of as much as 2 billion come due.

The plunge means that the pledged collateral is now worth far less than when Braun acquired the margin loan. The shares used by Braun to secure the loan from Deutsche Bank were worth 392 million euros on the day he pledged them back in 2017. After last week’s dramatic selloff, that value decreased to just 108 million euros at the end of trading on Friday.

Read more: Wirecard Creditors Seek More Clarity Amid Talks Over Debt

Margin loans are a common financing tool among the rich as they allow them to raise money from share holdings without actually selling them. Banks that make such loans frequently sell that exposure, sometimes shortly after signing them, in order to reduce the amount of risk on their balance sheets.

Read more: What’s Next for Wirecard Debt in Balance-Sheet Crisis

Deutsche Bank is also one of 15 banks in a group of lenders to Wirecard. Those banks now have the legal right to terminate the loan known as revolving credit facility because Wirecard breached conditions known as covenants when it failed to publish the annual report on Friday. The involved banks are currently trying to extract other concessions from Wirecard such as heightened transparency to avoid a default that would hit them too, Bloomberg has reported.

An announcement on the negotiations between Wirecard and its lenders could happen as early as next week, Bloomberg has also reported.

Deutsche Bank has gotten rid of at least some of the exposure from that RCF by putting it in a security known as collateralized loan obligation or CLO and selling it to other investors, other people familiar with the matter said.

(Updates to add that Wirecard withdrew its recent financial results in fifth paragraph.)

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