FT : Commerzbank warned BaFin about Wirecard in early 2020

Commerzbank warned BaFin about Wirecard in early 2020
German lender severed some ties with the payments group after internal review

Commerzbank warned Germany’s financial watchdog about money laundering risks at Wirecard in early 2020, underlining how fears about the payments group were building months before it collapsed.

The stark assessment Commerzbank offered BaFin in January last year was based on the findings of an internal review the bank began into its relationship with Wirecard in early 2019, according to three people familiar with the matter.

The conclusions of the review, which Germany’s second-biggest listed bank launched after the Financial Times reported on alleged accounting manipulations at Wirecard’s Asian division, prompted Commerzbank to begin to sever business ties with the payments group in the second half of 2019, the people said.

One of a consortium of lenders to Wirecard, Commerzbank lost €175m when the company failed in June in one of Europe’s largest accounting frauds.

The revelation that Commerzbank had conducted its own review, and flagged the findings to BaFin, comes as a German parliamentary inquiry into Wirecard’s demise this week turns the spotlight on the backing the once high-flying company received from some of the country’s largest banks.

Martin Zielke, Commerzbank’s former chief executive, and Deutsche Bank chief executive Christian Sewing are among the witnesses set to testify before the inquiry on Thursday. The banks helped fund Wirecard’s acquisition in 2015 of two Indian payments companies that were referred to in the fraud allegations against the group.

Its role in the transaction was one of the disclosures Commerzbank made to BaFin in a detailed presentation at a meeting on January 14 last year, according to people familiar with the matter.

The bank also informed the regulator of suspicious transactions by clients at Wirecard Bank, for which it processed cross-border payments. In response, BaFin concluded that there was “no immediate regulatory reason to act” as it was already aware of most of the issues raised by Commerzbank, the people added.

Commerzbank abandoned its business relationship with Wirecard Bank, where it was a so-called correspondent bank, in 2019. However, the lender remained part of a consortium of 15 banks that provided Wirecard with a €1.75bn revolving credit facility.

The bank’s internal review and warning to BaFin “undermines the view” that the German government and Wirecard’s business partners, such as Commerzbank, were “powerless with regard to Wirecard’s criminal intent”, said Fabio De Masi, an MP from the hard-left party Die Linke. 

“If Commerzbank pulled out of its correspondent banking relationship with Wirecard Bank in September 2019, why didn’t the lender also sever its credit relationship?” asked Mr De Masi.

Commerzbank wanted to terminate its lending relationship with Wirecard following its review, but the contract prevented an early exit from the consortium, which had committed the credit line until 2024, according to people familiar with the matter.

The findings of Commerzbank’s review were also at odds with the views of Heike Pauls, the bank’s analyst who covered Wirecard and had recommended investors buy the shares right up until the group collapsed.

In a statement, Commerzbank said there is a separation between the work of its analysts and other parts of the bank. It declined to comment further on its relationship with Wirecard.

BaFin confirmed in a statement to the FT that it had been briefed by Commerzbank about money laundering risks at Wirecard. The regulator added that it had already put Wirecard Bank’s anti-money laundering controls under close supervision in mid-2019.

“Commerzbank’s findings vindicated BaFin’s decision to do so and were taken into account in our work,” the watchdog said.

FT : Renault/Plug Power: what bubble?

Renault/Plug Power: what bubble?
Unbelievable Jeff.

Today, in markets making absolutely no sense, here’s a press release from Plug Power -- a hydrogen and fuel cell company that managed to earn a paltry $107m in 2020’s third quarter.

Groupe Renault, top automotive player, and Plug Power Inc. (NASDAQ: PLUG), global leader in fuel cell systems and hydrogen related services, announced the signature of a Memorandum Of Understanding (MOU) to launch a 50-50 joint-venture based in France by the end of the first half of 2021. This strategic JV will position Groupe Renault and Plug Power to become key players in Europe in the research and development (R&D), transformation, manufacturing and sale of fuel cell-powered vehicles and hydrogen turn-key solutions in the coming years. This joint-venture platform will serve the fast-growing market of fuel cell light commercial vehicles, taxis, and commercial people transportation.

The joint venture between the dinosaure OEM and the plucky green energy upstart will see them work together across three verticals: research and development, manufacturing, and sales.

Although, judging by the share price reaction, Renault need the most help with the latter.

At pixel time, the French car company’s shares are up 1.5 per cent to €36.80 on the news. That gives it a valuation of just under €11bn.

Yet in early trading, Plug Power’s share price is up 17 per cent to $62.36, giving it a market capitalisation of $30bn. Yes, that’s billion with a ‘B’.

So, in short, the press release caused the market to forecast that the discounted value of Plug Power’s future cash flows from this joint-venture agreement will be worth almost exactly a third of Renault’s market value (which, as a reminder, is the discounted value of its total future cash flows).

Okay, yes, we know. The market might be saying: “Well, it’s got this deal in the bag, who’s to say Plug Power can’t secure a few more of them now?” Or perhaps it’s: “This will help the company accelerate its R&D and manufacturing expertise, pulling forward its cash flows by a few years.” But . . . that still doesn’t quite make any sense relative to the extreme price action.

In fact, none of this stuff does. Not to bang the drum too hard, but it’s hard not to think this green energy/electric vehicle mania is going to run out of charge. And when it does, no one will be want to left stranded with an empty battery.

>>> US Gapping down

Gapping down
In reaction to earnings/guidance:

  • BSX -3.4%, BRKR -1.1%

Other news:

  • LMND -7.4% (stock offering)
  • THTX -7% (prices offering of 14,546,000 units of the Company at $2.75 per unit)
  • RDHL -6.4% (announces $10 mln bought deal offering)
  • PSTL -5.4% (prices follow-on offering of 3,250,000 shares of its Class A common stock at $15.25 per share)
  • GDOT -5.3% (WMT fintech deal seen as a negative for GDOT)
  • PLSE -5.1% (updates on CellFX system regulatory and clinical study progress)
  • O -4.1% (prices offering of 10.5 mln shares of common stock at $57.05 per share)
  • ZM -3.2% (public offering of $1.5 bln of shares of its Class A common stock pursuant to a shelf registration)
  • NIO -1.1% (convertible notes offering)
  • UI -1% (alerts customers of a data breach, according to TechCrunch)

Analyst comments:

  • GTES -2.3% (downgraded to Neutral from Outperform at Credit Suisse)
  • BE -2.1% (downgraded to Equal-Weight from Overweight at Morgan Stanley)
  • CMC -1.8% (downgraded to Underperform from Neutral at BofA Securities)
  • HST -1% (downgraded to Mkt Perform from Outperform at Raymond James)
  • NIO -1% (downgraded to Neutral from Buy at Citigroup)
  • AEP -0.9% (downgraded to Sector Weight from Overweight at KeyBanc Capital Markets)
  • NTR -0.7% (downgraded to Underweight from Neutral at Atlantic Equities)

>>> US Gapping up

Gapping up
In reaction to earnings/guidance:

  • VOXX +58.1%, MATX +6.6% (guides Q4 EPS above consensus), LMNX +5.7%, GNMK +5.3% (issues upside Q4 rev guidance), ACI +4.2%, CNXC +3%, BDX +2.7%, LE +2.7%, SHAK +2.2%, ACIA +1.6% (issues upside Q4 EPS guidance, inline rev guidance; also files counterclaim against CSCO), SNX +1.5% (also reinstates dividend), EAR +1.3% (guides Q4 revs above consensus), CTRN +1%

Other news:

  • LJPC +48.5% (announces exclusive licensing agreement for GIAPREZA (Angiotensin II) and XERAVA (Eravacycline) in Europe)
  • TTOO +39.4% (says its T2SARS-CoV-2 Panel is capable of detecting multiple variants)
  • FTFT +13.9% (bounces after big drop on Monday; WMT's creation of new fintech startup seen as possible catalyst)
  • BGNE +10% (BGNE announces a collaboration with NVS)
  • QTRX +6.9% (receives FDA EAU for Simoa SARS-CoV-2 N Protein Antigen Test)
  • AMRX +6.7% (will acquire a 98% interest in Kashiv Specialty Pharmaceuticals)
  • RCUS +6% (to present preliminary ARC-8 data at ASCO)
  • USAS +5.1% (declares commercial production at Relief Canyon)
  • HEC +5.1% (Online therapy company Talkspace is rumored to be nearing a deal to go public through a SPAC merger with HEC, according to Bloomberg)
  • EYPT +4.5% (provides clinical update and product revenue guidance)
  • XPEV +3.6% (secures RMB12.8 bln credit line)
  • CLSD +3.3% (announces that the first patients have been enrolled in its Phase 1/2a clinical trial of CLS-AX in patients with neovascular age-related macular degeneration; expects data from first cohort of patients in mid-2021)
  • PXLW +2.9% (signs new multi-year collaboration agreement with TCL)
  • ANGI +2.3% (reports Dec operating metrics)
  • SAGE +2.1% (BIIB discloses 10.7% stake in SAGE)
  • ADPT +1.9% (ADPT announces collaboration with AZN)
  • FLR +1.9% (awarded reimbursable services contract), ET +1.8% (new CFO)
  • VIR +1.6% (Vir Biotechnology and GlaxoSmithKline (GSK) provide update on NHS-supported AGILE study to evaluate VIR-7832 in the early treatment of COVID-19)
  • VSAT +1.6% (ViaSat and SKY Brasil announce partnership to expand the distribution and availability of Viasat's high-quality satellite internet service to more homes across Brazil)
  • X +1.4% (steel cos urge Biden to maintain steel tariffs, according to Reuters)

Analyst comments:

  • UPWK +4.7% (upgraded to Buy from Neutral at Citigroup)
  • AFL +4.4% (upgraded to Overweight from Equal-Weight at Morgan Stanley)
  • CLR +3.3% (upgraded to Neutral from Underperform at Mizuho)
  • OXY +3.2% (upgraded to Buy from Neutral at Mizuho)
  • DRH +2.9% (upgraded to Outperform from Mkt Perform at Raymond James)
  • TSM +2.5% (upgraded to Outperform from Mkt Perform at Bernstein)
  • PLUG +2.5% (initiated with a Buy at Truist)
  • WFC +1.8% (upgraded to Buy from Neutral at UBS)
  • MRO +1.7% (upgraded to Buy from Neutral at Mizuho)
  • COP +1.6% (upgraded to Buy from Neutral at Mizuho)
  • OSK +1.4% (upgraded to Outperform from Neutral at Credit Suisse)
  • IFF +1.1% (upgraded to Buy from Hold at Societe Generale)

>>> US Early premarket gappers

Early premarket gappers

  • Gapping up:
    • VOXX +62.5%, TTOO +35%, AMRX +13.7%, FTFT +13.3%, RCUS +11.6%, CMD +10%, BGNE +9%, MATX +6.6%, LMNX +5.9%, HEC +5.5%, RADA +4.5%, EYPT +4.5%, QTRX +4.1%, XPEV +3.7%, VIR +3.5%, CNXC +3%, PXLW +2.9%, ET +2.5%, ANGI +2.3%, BDX +2.3%, SAGE +2.2%, FLR +2%, ADPT +1.9%, USAS +1.7%, SWI +1.6%, ACIA +1.6%, AMN +1.6%, VSAT +1.3%, EAR +1.3%, X +1.2%, ICE +1.1%, PANL +1.1%, BOX +1.1%, INTC +1%, WMT +1%
  • Gapping down:
    • RDHL -7.8%, THTX -7%, PSTL -6%, LMND -5.6%, O -5.1%, ZM -4.7%, BSX -4.3%, MRUS -3.8%, GDOT -3.7%, UI -1%, NVS -0.7%, NUE -0.5%

BOF : Guide to Fashion’s Upcoming IPOs

Guide to Fashion’s Upcoming IPOs
Mytheresa, Poshmark and ThredUp all plan to go public this year, as does online payment service Affirm. As e-commerce continues to boom, will they succeed on the market?

Before the pandemic, the emerging consensus was that fashion’s last wave of initial public offerings was a bit of a bust. But as e-commerce sales soared over the past year, so did the stocks of public companies like Farfetch and Stitch Fix. Their share prices are trading at near-record highs.

Now, a new group of start-ups want in.

Online luxury retailer Mytheresa, peer-to-peer reseller Poshmark and mass-market reseller ThredUp — as well as online payments system Affirm — are planning to go public in the coming weeks. Poshmark is planning to price its IPO later this week. On Monday, British shoe brand Dr. Martens, owned by private equity firm Permira, said it was considering an IPO in London this year.

While these companies all boast different value propositions, they have plenty in common. They face well-capitalised challengers in crowded categories, and they’ve previously raised significant funding from private investors. Where in the past new money may have come from additional funding — or a sale — few cash-rich strategic buyers have shown interest in acquiring e-commerce platforms, for instance, and going public can offer a level of liquidity that a private investment may not.

However, an IPO also sets them up for public scrutiny and additional regulations, which can be a disadvantage during difficult business periods. While these companies can likely expect their share prices to pop at the opening bell on the first day of trading, the mixed record on recent fashion and retail IPOs signals a challenging road ahead.

BoF spoke to analysts about what to expect from three of this year’s most-anticipated IPOs.

Mytheresa

What is it? Online luxury retailer Mytheresa started as an upscale store in Munich in 1987, launching its e-commerce operation in 2006. It competes against Net-a-Porter, MatchesFashion, Farfetch and other multi-brand retailers selling luxury goods online. Mytheresa was sold to the Neiman Marcus Group in 2014 but was independently operated. (It is now owned by NMG’s private equity investors and also its creditors.)

Why go public now? With over $500 million in annual sales in the year ending June 30, up 20 percent from a year earlier, and an average order value of $674 — one of the highest in its competitive set — the profitable business benefited from a boom in pandemic-era online shopping. While it was seen earlier in the year as an acquisition target for a strategic group, a public listing in a market bullish on online retailers may offer a bigger return to previous investors. While its plan is to raise up to $150 million, a strong debut could value the global retailer at over $1 billion.

A year ago, the idea of a luxury e-commerce site going public would feel precarious, given Farfetch’s uneven performance and the well-documented struggles of private companies in the sector, including Yoox Net-a-Porter Group, Moda Operandi and MatchesFashion. However, the pandemic boosted sales at Farfetch, which projected it would finally reach profitability in the last quarter of 2020. Farfetch also entered a joint venture with Chinese internet giant Alibaba and Swiss conglomerate Richemont, raising $1.15 billion in additional funding.

The luxury marketplace’s stock soared, currently trading at $60.47 per share, up 440 percent from $11.15 a year ago.

“As we have seen with Farfetch, for example, Covid-19 has provided a major boost and growth acceleration,” said Luca Solca, a luxury analyst at Bernstein. “This may be a way to make hay while the sun shines.”

What do investors need to know? Mytheresa prides itself on its steady approach to increasing sales. Instead of sacrificing profitability for explosive growth — its customer acquisition costs fell by nearly 10 percent in the last fiscal year — it has differentiated itself through unique product and a focus on high-touch customer service. Of the 7,000 unique styles it had on hand in December 2019, just 21 percent overlapped with competitors, according to an internal review.

And according to its registration with the SEC, the site claims a net promoter score, a measurement of online customer satisfaction, of 83 — extremely high for an online apparel retailer, or any retailer for that matter. The site’s customer base has grown at a compound annual rate of 29.7 percent since fiscal 2016. Shoppers tend to come back over and over: more than 65 percent of net sales in its latest fiscal year came from customers who had shopped with Mytheresa in the past.

Analysts value Mytheresa’s one-to-one approach to customer service. “I like the original curation that Mytheresa has been able to develop,” Solca said. “This makes me [confident] about their ability to stand their ground and make a profit.”

The question, of course, is how big Mytheresa can get in a highly competitive market with only a certain amount of covetable product. Exclusive styles only work if they are what the customer wants, and as more brands take an increasing amount of their business direct, Mytheresa and its team will have to campaign hard to be the wholesaler of choice.

Poshmark

What is it? Founded in 2011, Poshmark is one of the biggest secondhand e-commerce shops in the US and Canada with nearly 32 million active users as of last September. It’s a peer-to-peer marketplace, which means that the company doesn’t carry inventory, unlike resale competitor ThredUp or The RealReal, which procure clothes from sellers on consignment, taking a percentage of the revenue when the item is eventually sold.

Why go public now? So far, The RealReal is the only major apparel resale player in the public market — eBay and Etsy are less specialised — but the growth potential for the sector is projected to be colossal. A recent Cowen & Co. report estimated that the “re-commerce market,” which includes resale and rental, could reach 14 percent of the total fashion market in 2020, up from a 7 percent share in 2019. Analysts believe that resale’s share of the apparel sales market will only continue to increase.

What do investors need to know? Poshmark specialises in a much lower price point than The RealReal, with an average order value of $33. It has already achieved profitability, in part thanks to its no-inventory model. Its first profitable quarter came in the three months ending June 30, according to its registration statement. In the four quarters ending on September 30, 2020, Poshmark posted sales of $247.5 million and adjusted EBITDA (earnings before interest, tax, depreciation and amortisation) of $17.5 million. Its gross merchandise value — or the cost of goods sold on the site — totaled $1.3 billion in that same period, compared to $1 billion the previous year.

“The marketplace model allows for the consumer and seller to absorb a lot of the expenses that otherwise burden the company in a consignment model,” said Simeon Siegel, retail analyst and managing director at BMO Capital Markets.

Investors may also appreciate Poshmark’s simplified fee model. The company charges a 20 percent fee for any transactions $15 or above and a $2.95 flat rate for all cheaper items, offering one of the most attractive and consistent commission rates on the market.

One of Poshmark’s calling cards is that its app also doubles as a social network, which it says helps to increase usage and engagement. Users not only buy and sell from one another but also engage in interactions through comments, shares, follows and negotiations on purchases.

While Poshmark will soon become one of the few mass-market resale players on the public market, competition in the space is heating up. In the US, Poshmark is already competing with ThredUp, eBay, Depop and a new crop of resale marketplaces, including Mercari.

Some users have criticised Poshmark’s intense selling process, which requires regular engagement with other users to make sales. The company’s wholesale division, under which it sells private label inventory in bulk to some users, has also come under scrutiny as sellers cite issues with offloading the inventory after committing to selling it. The wholesale programme generated less than 1 percent of Poshmark’s gross merchandise value in 2019.

ThredUp

What Is it? Founded in 2009, ThredUp is a resale consignment website that offers shoppers millions of secondhand apparel products from brands like J.Crew and Ann Taylor at a fraction of the retail cost. Dubbed the “modern Goodwill,” its website touts pricing that starts at $7 for sweatshirts and $10 for leggings.

Whereas Poshmark markets itself as a way for sellers to set up a lucrative business, ThredUp’s value proposition is that consumers can get rid of a lot of stuff at once. Sellers can request free “Clean Out Kits,” which include a prepaid shipping label, and send back the kits filled with their unwanted garments.

ThredUp confidentially filed for an IPO in October, and its registration statement remains private. The company has yet to disclose the size and price range of the offering.

Why go public now? Like Poshmark, ThredUp sees tremendous opportunity in a swiftly growing resale market. Its low prices on the buyer side make it a high-volume business, while the ease of use on the seller side all-but guarantees a steady supply of fresh goods.

When ThredUp raised its last round of private funding in 2019, the company said it intended to use the capital for expanding its digital infrastructure and growing its retail partnerships arm with brands including Madewell, Gap, Walmart and Macy’s. These partnerships vary case-by case. Some allow retailers to sell secondhand products provided by ThredUp at select locations, while others offer their customers ThredUp’s clean out kits in exchange for store credit for any sold items.

ThredUp is among the few resale platforms to offer secondhand commerce as a third-party service. It competes with Trove, which sets up resale channels for retailers and brands.

With an IPO, ThredUp will be able to gain significant market share in the “resale-as-a-service” space, in addition to gaining further mindshare among consumers.

What do investors need to know?

While ThredUp makes its selling process easy for consumers, it ends up doing all the heavy lifting of sifting through, photographing and listing items itself, which likely weighs down its profits. This continues to be a problem for The RealReal as well, which went public in 2019 and has yet to become profitable.

ThredUp’s commission rates are also high: items priced below $20 have a payout rate of 3 to 15 percent for the seller.

Like Poshmark, ThredUp competes with Depop and Lithuanian peer-to-peer resale website Vinted, both of which recently raised private funding for expansion plans.

Investors say one of ThredUp’s biggest strengths is its burgeoning retail partnerships division. ThredUp is able to convince brands, who are largely wary of the secondhand market, to embrace resale. The idea is that by encouraging customers to resell a used handbag or dress, they then will have the cash to spend on the primary market. In the case of Reformation’s partnership with ThredUp, for instance, shoppers get store credit for any of the items they sell through the resale platform.

“Retail historically is a zero-sum, but resale doesn’t have to be,” Siegel said. “It will naturally syphon away some dollars from the [traditional retailers] but...it will also be a new way to free up the customer’s wallet to buy something else.”