Wirecard reminds utility risk managers of prior accounting frauds & bankruptcies
Mike Zaccardi, CFA, CMT
My day job involves helping to assess and manage energy market and financial risks for utility companies. I keep a close eye on both the macro environment and the portfolios of said utilities.
The big news from a risk-perspective this week is the sudden collapse of Wirecard, the German Financial Technology company. Once a giant, Wirecard’s market cap was near $25 billion, but has now fallen below $500 million as investors swiftly sold the stock due to accounting fraud news.
It harkens risk managers back to several key corporate bankruptcies that seemed to appear out of nowhere.
Energy market participants like myself immediately think of Enron (ENE). The Texas-based energy marketing firm was the twinkle in the eye of Wall Street traders and analyst before its December 2001 bankruptcy. CEO Ken Lay, just five weeks before the chapter 11 filing, told employees that their liquidity position was ‘fine’ and even ‘better than fine. It’s strong.’
Another pair of instances was during the Global Financial Crisis of 2008.
First, Bear Stearns CEO Alan Schwartz told the media just days before its bankruptcy filing that the company’s liquidity was ‘strong’ and that Bear was ‘adequately capitalized’.
Then, Lehman Brothers CEO Dick Fuld discussed ‘smart risk management’ strategies in order to ‘fight another day’ a few months before their fall in September 2008.
Now we have Wirecard. CEO Markus Braun said just days ago that the firm has ‘outstanding technology’ and ‘abundant resources’ to ‘ensure a great future’.
The great risk manager Stone Cold Steve Austin would say "don't trust anybody!"
A good credit analyst and risk manager doesn’t trust management. It’s kind of sad to say, but quite true. Utilities deal with a lot of credit risk given the amount of debt used in the industry, so monitoring what is happening with your counterparties is critical to successful risk management.
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Chart used with permission from Tradingview.com