Wirecard
In 2020 a payments company listed in Germany's DAX index collapsed after about 1.9 billion euros in trust accounts couldn't be found. The shares lost practically all their value.
For years Wirecard was seen as a German showcase company, and in September 2018 it joined the DAX. During 2018 the shares rose to almost 200 euros. In June 2020 the company announced that bank balances of about 1.9 billion euros probably didn't exist at all. A few days later it filed for insolvency.
The backstory is remarkable. Journalists at the Financial Times had published doubts about the figures for years. Instead of looking into the allegations, for a long time the critics were mainly attacked. In 2019 the financial regulator even banned new bets against the shares for two months.
For investors the loss was total. Anyone who had bought at the peak lost almost everything. Unlike after a normal price drop, there was no recovery, because no value was left in the company.
The conclusion is uncomfortable: neither inclusion in a well known index nor an audit by a big accounting firm nor years of rising prices prove that the figures are right.
The case shows why the cash flow statement often reveals more than reported profit. A large part of the business ran through partner firms whose income sat in trust accounts. So an ever larger part of the profit was matched by money Wirecard itself couldn't directly get at. Fast growing profits and little money actually coming in: that's exactly the warning sign described in the lesson Reading a Balance Sheet.
For your portfolio the lesson is the difference between the risk of the market and that of a single company. In a broadly diversified index you barely notice the failure of a single stock. In a portfolio with few stocks it can ruin you. Because the risk of individual companies isn't rewarded, the concentration here was risk nobody got anything for.
In Germany the case led to reforms in the checking of accounts and in financial supervision. For you that changes little. Supervision and audits make it more likely that fraud is discovered, but don't guarantee it. Only diversification reliably protects you against the failure of a single company.
Summary
- Index membership and an audit opinion are no guarantee the numbers are correct.
- Earnings growth with no matching cash flow is a warning sign.
- Only diversification protects against a single stock's failure.
Did you get it?
What warning sign was built into the numbers?
Fast growing profits but little money from ongoing business, and balances held in third parties' trust accounts.
Why didn't DAX inclusion help investors?
Whether a company joins an index depends on its size and how much it's traded. That says nothing about whether its figures are right.
What protection remains against a case like this?
Diversification. The risk of individual companies isn't rewarded and can be diversified away completely.
Your task
Profit is growing, but the cash is not coming in: what do you check in a company's numbers before you buy? In the annual report of a company of your choice, look up profit and cash flow from operating activities for the last three years and compare whether both move in the same direction.
Sources and further reading
- Public company announcements from June 2020, Financial Times reporting, and the reports of the German Bundestag's investigative committee.
- Germany's Federal Agency for Civic Education on the Wirecard scandal and BaFin's role. View source ↗
- Wirecard AG, ad hoc announcement of June 22, 2020 on the situation of the company: the management board considers it prevailing likely that the trust account balances of 1.9 billion euros do not exist. Retrieved October 9, 2026. View source ↗
- BaFin, general administrative act of February 18, 2019 (in German): ban on new net short positions in Wirecard shares, valid until April 18, 2019. Retrieved October 9, 2026. View source ↗
- German Bundestag, report on the conclusion of the 3rd investigative committee (Wirecard), June 2021 (in German): the coalition's assessment as accounting fraud and criticism of the regulator and the auditor. Retrieved October 9, 2026. View source ↗
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- Reading a balance sheetStage 4
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