Short-sellers increase bets against Wirecard as hedge funds eye bigger pay-off from crisis-hit company’s demise
Hedge funds are holding off from closing their short positions in crisis-hit e-payments firm Wirecard AG - with some even increasing their bets – in expectation that its share price will tumble yet again, boosting short sellers’ returns even further.
New analysis by Ortex, the London-based equity analytics firm, suggests only 12.5 per cent of short positions have been closed over the past week, as the situation at the scandal-hit DAX 30-listed firm steadily worsened.
That leaves 16.8 million – 15 per cent of total freefloat – still shorted.
Several hedge funds have maintained or increased their short positions over the past week, including Slate Path Capital, Samlyn Capital, Coatue Management, Maverick Capital, and Coltrane Asset Management.
Munich-headquartered Wirecard filed for insolvency on Thursday, following revelations of accounting irregularities in which some EUR1.9 billion worth of reported cash balances – an estimated quarter of its total balance sheet – could not be verified by auditor EY.
Wirecard’s share price was around EUR3.50 on Thursday (25 June) afternoon, having collapsed from EUR104 mid-last week just before news of the alleged fraud broke.
Earlier this week, CEO Markus Braun was placed under arrest. He is accused by prosecutors in Munich of inflating the digital payments firm’s finances to appear more attractive to investors and customers.
“In a week when the share price dropped by over 90 per cent and the CEO was arrested, it would have been easy for hedge funds to take a profit and run,” Peter Hillerberg, co-founder of Ortex, said of the short positions in Wirecard.
“However, our data shows that the vast majority of short sellers have been holding their positions, and in some cases increasing them, in anticipation of a further reduction in the share price.
"It looks like their patience will pay off," Hillerberg said.
Jim Chanos, president and founder of Kynikos Associates and high-profile short-seller, told the Bloomberg Invest Global digit summit this week that evidence of wrongdoing at Wirecard last year “was almost irrefutable.”
TCI Fund Management, the high-profile activist hedge fund firm led by Sir Chris Hohn and another major short-seller of Wirecard shares, last month filed a criminal complaint against the German company as concerns over its accounting grew.