Hedge funds are holding on to their Wirecard short positions, even as the company announces it has filed an application to start insolvency proceedings.
According to short interest data provider Ortex, only 12.5 percent of Wirecard short positions have been closed in the past week. This leaves about 15 percent of its publicly available shares shorted, according to Ortex.
Wirecard, a German fintech company, announced Thursday that it plans to start insolvency proceedings, which are akin to bankruptcy proceedings in the United States. This comes one week after the company announced that its auditors could not confirm the existence of the €1.9 billion ($2.1 billion) meant to be held in trust accounts.
Since that revelation, Wirecard’s share price has plummeted: The stock closed at €104.50 on June 17 and closed on Thursday at €3.53 per share, a 96 percent drop. The Frankfurt Stock Exchange suspended trading of Wirecard shares on Thursday, its announcement shows.
The company’s chief executive officer, Markus Braun, resigned from his post on June 19 and was arrested in Munich on June 23 for allegedly inflating Wirecard’s total assets and sales volume, the local prosecutor’s website shows.
While some hedge fund firms cashed out their short bets last week — making, according to S3 Partners, $2.25 billion on June 18 — others held on. Ortex said it estimated that at the start of the crisis, open short positions were worth at least €1.6 billion — but now, hedge funds stand to gain “significantly more.”
“In a week when the share price dropped by over 90 percent and the CEO was arrested, it would have been easy for hedge funds to take a profit and run,” said Peter Hillerberg, co-founder of Ortex, via email Thursday. “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.”
According to Ortex’s research, Slate Path Capital, Samlyn Capital, Coatue Management, Maverick Capital, and Coltrane Asset Management have either maintained or increased their short positions in the past week. Coatue declined to comment, as did Slate Path. Spokespeople for Samlyn and Maverick did not return emails seeking comment; Coltrane did not immediately return a phone call seeking comment.
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Exiting short positions will become more challenging now that trading has been halted.
“With regards to exiting positions, this will now depend on the insolvency process that was started today,” said Hillerberg via email. “As trading has been suspended, they won’t be able to exit their position in the usual way.”
A spokesperson for Wirecard did not respond to an email seeking comment on Thursday.