Written by 16:22 FinTech

Börsen-Zeitung: Comment by Christopher Kalbhenn on Wirecard

On Monday, 24 August 2020, the DAX will finally be Wirecard-free. Following a rule change adopted by Deutsche Börse, in the future shares of insolvent companies will be immediately removed from the DAX family of indices, which in the case of Wirecard will happen on 21 August 2020, after the close of trading. The decision to accelerate the removal of Wirecard was unavoidable. After all, given the enormity of the balance sheet fraud scandal, it was unacceptable for the stock to continue to spoil the blue-chip index, which is a figurehead of the German economy, well into the next month.

Wirecard is also unworthy of DAX membership because of its plummeting share price and the resulting free-float market capitalization, which is far too low for the index, as well as the enormous daily fluctuations of the share. Wirecard has degenerated into a gambling stock that no longer has anything to do with solid investments. The stock is an imposition for market participants, especially for those who operate index-matching products and are therefore forced to hold the company.

As welcome as the decision is, it is ultimately just a first step. A more detailed review of the rules and regulations announced by Deutsche Börse, who will present the results before the end of this year, must lead to further changes in order to reduce the risk of further damage to the company’s reputation. Corporate governance aspects must also be taken into account.

What would happen, then, if Wirecard had not gone into insolvency after admitting that the reported EUR 1.9 billion did not actually exist? Assuming that the market capitalization and sales criteria were met, the stock would have continued to qualify for one of the select indices, as already happened in the Steinhoff case. The management of the retail furniture group, which went public in Frankfurt in 2015 and whose shares were temporarily one of the largest MDAX stocks, was shown to have fraudulently inflated its balance sheet. However, the company was able to avoid insolvency. The share price collapsed, and the stock dropped into the SDAX. In December 2019, it was removed from the index, to be later reinstated in March of this year. These events must not happen again. Proven balance sheet fraud must lead to exclusion from the index and a ban for several years.

 

Source: Börsen-Zeitung, 14. August 2020, Christopher Kalbhenn, © All rights reserved.

Image: Gerd Altmann/Pixabay

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