* Money in foreign accounts was likely never there
* German regulator concedes Wirecard a 'disaster'
* Prosecutor considers arrest of former CEO - sources
* New CEO eyes sale or closure of parts of business
(Repeats to add story link)
By Patricia Uhlig, Karen Lema and John O'Donnell
FRANKFURT/MANILA June 22 (Reuters) - Wirecard said on Monday
that 1.9 billion euros ($2.1 billion) it had booked in its
accounts likely never existed, a black hole that threatens to
engulf the payments company and tarnish the reputation of
Germany's financial watchdog.
The one-time investor darling is holding emergency talks
with its banks, which are owed roughly 1.75 billion euros, to
avert a looming cash crunch triggered by the missing money.
The episode marks a dramatic turn in the fortunes of a
homegrown tech firm that attracted some of the world's biggest
investors before a whistleblower alleged that it owed its
success in part to a web of sham transactions.
Wirecard said last week that auditor EY had refused to sign
off its 2019 accounts as it was unable to confirm the existence
of 1.9 billion euros in cash balances in trust accounts, about a
quarter of its balance sheet.
On Monday, the company was frank.
"The Management Board of Wirecard assesses ... that there is
a prevailing likelihood that the bank trust account balances in
the amount of 1.9 billion EUR do not exist," it said.
State prosecutors in Munich investigating the case are now
considering issuing arrest warrants for its former CEO, Markus
Braun, and Jan Marsalek, a board member fired on Monday,
according to two people familiar with the matter. Braun and Marsalek could not be immediately reached for
comment, and their lawyers declined to comment.
The furore has also damaged Germany's image.
Felix Hufeld, head of Germany's financial watchdog Bafin,
described the crisis, which has seen around 11 billion euros
wiped off Wirecard's market value in recent days, as a "total
disaster", conceding his agency and others had made mistakes.
"It is a scandal that something like this could happen,"
Hufeld said. UNDER FIRE
Bafin's own record has come under fire as Wirecard's share
price has imploded, hitting retail investors and some large
money managers.
The regulator had focused on probing so-called short-sellers
and journalists behind reports which questioned Wirecard's
accounts, prompting criticism over its inaction against the
company.
German lawmaker Fabio De Masi said that Bafin had failed in
its duty over Wirecard, whose credit rating was ultimately
withdrawn by agency Moody's.
Wirecard, which started out handling payments for adult
entertainment and gambling websites and now processes payments
for companies including Visa V.N and Mastercard MA.N , has
appointed investment bank Houlihan Lokey to help assess its
options.
More than a dozen banks, including ABN Amro and Commerzbank,
are forming a creditor committee and have hired law firm Allen &
Overy, two people close to the talks said.
Houlihan Lokey, A&O and the banks declined to comment.
Wirecard WDIG.DE also said it is looking at the sale or
closure of parts of its business, but its creditor banks are not
interested in a fire sale, especially as litigation risks may
put off buyers, one person close to talks told Reuters.
The company, which has long been held up as a rare German
technology success, also withdrew its financial statements for
2019 and said it was examining cost cuts.
HUNT FOR MISSING CASH
EY had regularly approved Wirecard's accounts in recent
years, and its refusal to sign off for 2019 confirmed failings
found in an external investigation by KPMG in April, which in
turn followed investigative reports by the Financial Times.
Wirecard's latest announcement follows the exit on Friday of
former chief executive Braun, who was replaced by James Freis,
an ex-compliance officer at Germany's stock exchange.
The company has been under scrutiny since the whistleblower
alleged the web of sham transactions. This culminated in a
search for the missing cash, which last week hit a dead end in
the Philippines. The Philippine central bank said none of the money appeared
to have entered the country, after Bank of the Philippine
Islands (BPI) and BDO Unibank BDO.PS said documents purporting
to show Wirecard had deposited funds with them were false.
BPI BPI.PS Chief Executive Cezar Consing said a
certificate purporting to be for a Wirecard deposit was
"spurious". Wirecard, which operates both as an issuer of real and
'virtual' payment cards, had marketed itself as a universal
payments platform positioned to profit from the growth in
digital payments. Its future is now uncertain. ($1 = 0.8938 euros)
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No clear path to salvation seen for stricken Wirecard
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