For the biggest financial scandal in years - the collapse of Wirecard due to massive fraud - there is plenty of blame to spread around: from the total lack of oversight by BaFin (Federal Financial Supervisory Authority) to the mind-boggling mistakes by the auditors Ernst&Young. The business journalist Stephan-Götz Richter recently listed seven reasons for the collapse in Der Spiegel: Die sieben Fehler im Umgang mit dem Wirecard - Scandal. One of the reasons Richter catalogs in particular resonated with me. The German banking sector has been in free fall ever since the global financial collapse of 2008. Deutsche Bank has been rocked by endless scandals and is now just a shadow of what it was 20 years ago. Commerzbank remains crippled and is now in the hands of an American private equity group. The Landesbanken were always a joke, and now are consolidating. All this as financial institutions across Europe are beginning to face massive defaults due to the COVID-19 pandemic. Compared to this wreckage Wirecard seemed like a savior - a leader in financial innovation that was growing at breakneck speed.
Mit anderen Worten: Dem Bankensektor droht in Deutschland ein schleichender Kollaps. Kein Wunder, dass man unter diesen Umständen geneigt war, sich kollektiv am Aufstieg von Wirecard wie an einer Partydroge zu berauschen. Aber diese Form der Ekstase führte zu dem für Partydrogen bekannten Ausgang.
("in other words, the German banking sector is facing creeping collapse. No wonder that in this situation the rise of Wirecard was greeted with the collective exhilarating high of a party drug. But this kind ecstasy has the usual outcome of all party drugs.")
By the way, the German banks only compounded their misery by lending to Wirecard. Commerzbank alone has to write down $200 million in loans to the scandal fintech group:
The lender said Wednesday that it wrote off €175 million ($207 million) in the second quarter related to a large single case. While it didn’t name the case, a person familiar with the situation said it was Wirecard. The charge came on top of €131 million it took from the effects of the coronavirus pandemic.
“We will do lessons learned on cases like that,” said Commerzbank Chief Financial Officer Bettina Orlopp in an earnings call with analysts. She added that there needs to be a wider debate in Germany on how to interpret red flags in the future.
"Lessons Learned" indeed. The banks in Germany have learned nothing since the global crisis of 2008. With respect to Wirecard, all the pain could have been avoided if people had taken seriously the explicit warnings of the Financial Times.
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