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Home » Daily Briefing » Daily briefing - 25 April 2019

Daily briefing - 25 April 2019

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Which is Germany's most dysfunctional bank or financial institution: Deutsche Bank, Commerzbank or newcomer Wirecard? In news that will come as a shock to no-one this morning, Germany's Deutsche Bank and Commerzbank have called off merger talks. Wirecard, meanwhile, is getting attention it doesn't want, and German authorities have come to its defence. Wirecard this morning announced that EY had signed off on its 2018 accounts with no evidence that the results will be affected by an ongoing investigation in Singapore.

Wirecard is definitely going places. The group said it processed $125 billion of payments last year, up from $91 billion the year before. The announcement follows an escalation this week of Wirecard vs the Press. But there are big stakes at play here, as payments processors are earning big valuations even if attracting a fraction of the interest that attaches to big tech IPOs. The processing of payments has become big news as the use of cash diminishes and new businesses are built on digital platforms. Deep pocketed private equity groups have been buying and selling payment processors that began life as acquiring divisions banks, but were spun off before or after the northern financial crisis. German payments processor Wirecard begat itself, growing into a sprawling international business and last year propelling itself into the elite of German businesses, and displacing Deutsche Bank from the DAX Index of Germany's top 30 companies.

FT journalist Dan McCrum has been writing about Wirecard for more than four years, under the genius title of House of Wirecard, echoing the Netflix series about the power couple who sleaze their way to the US White House. The crux of the matter is an allegation by the FT that Wirecard's profits come through opaque partner organisations, some of which appear to be run by former Wirecard employees. The response of German authorities to this questioning of one of its industrial darlings has been to ban short-selling of Wirecard stock. Munich prosecutor said they were looking to see if they FT broke securities trading rules.

Yet the FT is not the only one looking hard at Wirecard. A group called the Southern Investigative Reporting Institute, which this week published another instalment of its Wirecard investigations, which have helped to push forward the FT story. The main recent developments are the uncovering of a company called CardSystems Middle East. "Meet CardSystems Middle East FZ LLC, the tiny, Dubai-based box with a long name on Wirecard's ever-expanding organizational chart," writes Boyd. "Don't waste your time looking for information on CardSystems in Wirecard filings -- apart from a few very brief mentions in annual reports, there's nothing else. There are two reasons why Wirecard avoids publicly discussing CardSystems: optics and economics."

The FT went over to Dubai's Internet City to visit the CardSystems office, and found no one in on a first visit, two people on a second visit, and a lone IT person on a third visit to the offices of Wirecard's most profitable division. (SIRF mentions helpfully that the operation seems to be run mostly from the home office of CardSystems owner Oliver Bellenhaus, who runs it from the Burj Khalifa, the world's tallest building.)

A fascinating tale from Reuters covers the battle for Libya's banking system, as eastern Libyan commander Khalifa Haftar advances on the UN-backed administration in Tripoli. But the central bank is seeking to cut off cash to banks in the east, hoping to staunch the flow of funds to Haftar's soldiers. "But diplomats and banking sources say that those sources of support might be closing, as the Tripoli-based central bank, which controls the country's energy revenues, has taken steps to curtail the operations of banks in the east," reports Reuters. "Those banks have in recent months struggled to meet minimum deposit requirements, which could give the Tripoli central bank allied to Tripoli Premier Fayez al-Serraj the excuse to shut off access to hard currency, they said." Read the rest of the story here.

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