Commerzbank Flagged Shady Wirecard Transactions Before Meltdown

(Bloomberg) -- Commerzbank AG warned German authorities about suspicious Wirecard AG transactions more than a year before the payments company collapsed, a senior executive said.

The German lender flagged money-laundering concerns in early 2019 before informing the Bafin banking watchdog of its decision to exit the relationship with Wirecard, Chief Risk Officer Marcus Chromik said late Thursday during testimony in Berlin before a parliamentary inquiry probing the Wirecard scandal.

The Munich-based payment company filed for insolvency last June after disclosing that about 2 billion euros ($2.4 billion) it had previously reported as cash didn’t exist. The corporate failure has morphed into Germany’s biggest postwar accounting scandal, with former executives in jail or on the run.

Bafin’s role in the scandal has come under particular scrutiny. The watchdog in 2019 imposed a short-selling ban on Wirecard stock. That decision gave Chromik reassurance that the loan extended by Commerzbank to Wirecard wasn’t at risk, he said at the hearing.

Commerzbank was a member of the consortium of banks that jointly had made 1.8 billion euros in credit available to Wirecard. Its credit exposure to the payments company was 197 million euros when it collapsed, of which it has written off 187 million euros, Chromik said.

The lender reviewed its relationship with Wirecard in 2019 following a critical report from the Financial Times and subsequently decided it would pursue a “soft exit” from the company, Chromik said at the hearing. However, the big hit to earnings suggests it didn’t hedge its credit exposure, unlike its competitor and fellow consortium member Deutsche Bank AG.

Wirecard was long a darling of the investment community and of the German political elite, with its promise of playing a central role in the booming wireless payment industry. Chromik said fraud on the scale that Wirecard is alleged to have committed was “beyond his comprehension,” particularly because the company was part of Germany’s elite DAX index of the 30 biggest companies -- a coveted position it had inherited from Commerzbank.