Wirecard collapsed yesterday owing creditors almost €3.5bn after disclosing a gaping hole in its books in Germany's worst accounting scandal.
The implosion of the payments company came a week after auditor EY refused to sign off its 2019 accounts, forcing out CEO Markus Braun and leading Wirecard to admit €1.9bn of its cash probably didn't exist.
Wirecard is the first member of Germany's prestigious Dax stock index to go bust, less than two years after it commanded a spot among the country's biggest 30 listed companies with a market valuation of €25bn.
Its demise leaves creditors with scant hope of getting back the €3.5bn they are owed. Of that amount, Wirecard has borrowed €1.75bn from 15 banks and €500m from bond investors.
"The money's gone," said one banker. "We may recoup a few euros in a couple of years but will write off the loan now."
The collapse of Wirecard, once one of the hottest financial technology companies in Europe, dwarfs other German corporate failures. Drilling machines maker Flowtex inflicted losses of more than €2bn in the 1990s while container firm P&R cost investors some €3bn in 2018.
Wirecard shares, suspended ahead of the announcement, crashed 80pc when trading resumed. They have lost 97pc since EY questioned its accounts last Thursday.
Wirecard said in a statement its new management had decided to apply for insolvency at a Munich court "due to impending insolvency and over-indebtedness". It said it was evaluating whether to file for insolvency for subsidiaries.
A source close to talks with creditors said that although the company had a healthy core, about two-thirds of sales had been faked in its accounts.
"There is no way that they could repay their total debt of €3.5bn with that core, notwithstanding all the legal challenges ahead of them," the source said.
Another source said the banks were completely shocked Wirecard had sought insolvency, beating to the punch creditors who were thinking of calling in loans.
"We thought Wirecard was a trustworthy company run by people who knew what they are doing," the source said, comparing the saga to the collapse of energy trader Enron.
The ascent of Wirecard, founded in 1999, was dogged by allegations from whistleblowers, reporters and speculators that its revenue and profits had been pumped up through fake transactions.
"Today is a complete vindication for those that exposed the fraud," said Fraser Perring, who bet on a fall in Wirecard's shares and co-authored a 2016 report that alleged fraud.
The Munich prosecutor's office, which is already investigating Braun on suspicion of misrepresenting Wirecard's accounts and of market manipulation, said: "We will now look at all possible criminal offences."
Braun has been freed on bail of €5m and remains a suspect. Former chief operating officer Jan Marsalek is also under suspicion and is believed to be in the Philippines.