News & Analysis

Wirecard dominates penny stock volatility - but for how long?

Andrew Saks, Tuesday, 3 August 2021

Volatility is often considered to be the lifeblood of the electronic markets, yet for many years now, the most stable company stocks, indices and currency markets are the most traded.

It stands to reason, of course. All of the world's most prominent exchanges are based in the largest and most well-established financial centres, themselves bastions of talent, high levels of infrastructure, and situated in major metropolitan cities which are renowned for financial markets mettle, namely New York, Chicago, London, Singapore and Sydney.

There are, of course, other stock exchanges with large, well-capitalized firms listed on them, and then there is the Frankfurt Stock Exchange, which is an interesting anomaly.

One of its largest financial services companies, whose stock has been tradable on the Frankfurt Stock Exchange since October 2000 is bankrupt.

Not only has it been bankrupt since mid-2020, but its former CEO and CTO Markus Braun resigned and was later arrested after revelations that €1.9 billion was "missing".

The company is Wirecard AG, which has trodden a precarious path since 2019 with its CEO, COO, two board members, and other executives having been arrested or otherwise implicated in criminal proceedings.

In June 2020 the company announced that €1.9 billion in cash was missing. It owed €3.2 billion in debt. The company has been in the process of being dismantled after it sold the assets of its main business unit to Santander Bank for €100 million in November 2020.

However, perhaps remarkably, its stock is still available on a restricted basis on the Frankfurt Stock Exchange, and my goodness is it volatile.

A brief glance at the chart pattern on an intraday basis for any of the days over the past week reveals a set of data on a graph which looks like an echocardiograph measuring the heart rate of a Formula 1 racing driver in pole position on the starting grid.

There are severe up and down movements, with stock racing up and then down again in a matter of minutes, then repeating the process over and over again.

Looked at on a month to month basis, Wirecard stock is right down, at 0.34 euros per share today compared with 0.38 Euros this time a month ago, placing it firmly in the penny stock category, which it has been occupying since June 2020 when its share value decreased by over 72% after the news that 1.9 billion euros had been embezzled.

Germany's regulatory authority BaFin stood by and watched as the entire case unravelled, and the customers owed money runs into the tens of thousands, and during the downfall of Wirecard, a series of academics in North America released a report which stated that persons and organisations publicly critical of Wirecard had been the target of sustained hacking and phishing attempts by a hackers-for-hire group dubbed Dark Basin.

The copybook simply could not get more blotted, however the volatility is there, the shares are tradable and perhaps investors are keeping a close eye on the remaining structure of the company which could be stripped and sold, albeit for cheap, once the entire case is concluded, which could take some time.

The other alternative, of course, is that it is wound up and disposed of, which would render the stock utterly worthless.

It's circumstances like these which create volatility, as nobody, even the most astute of analysts, knows which way this will go, and yet it is a remarkable facet that it is still trading.

It could be assumed that if this was stock listed on the London or New York exchanges, it would have been de-listed a long time ago for 'not meeting the criteria'.

Some, it seems, are less critical than others.

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