FRANKFURT/MANILA (Reuters) – Wirecard said on Monday that 1.9 billion euros ($2.1 billion) it had booked in its accounts likely never existed, a black hole that threatens to engulf the payments firm and tarnish the reputation of Germany’s financial watchdog.

One-time investor darling Wirecard is holding emergency talks with its banks, who are owed roughly 1.75 billion euros, to avert a looming cash crunch triggered by the missing money.

Wirecard also said it is looking at the sale or closure of parts of its business, but its creditor banks are not interested in a fire sale, especially as litigation risks may put off buyers, one person close to talks told Reuters.

Felix Hufeld, head of Germany’s financial watchdog Bafin, described the crisis, which has seen around 11 billion euros wiped off Wirecard’s market value, as a “total disaster”.

“It is a scandal that something like this could happen,” Hufeld said.

Bafin’s own record has come under fire in Germany as Wirecard’s share price has imploded, hitting retail investors and some large money managers.

The regulator had focused on probing so-called short-sellers and journalists behind reports which questioned Wirecard’s accounts, prompting criticism over its inaction.

German lawmaker Fabio De Masi said that Bafin had failed in its duty over Wirecard, whose credit rating was withdrawn by agency Moody’s due to “accounting irregularities”.

Wirecard, which started out handling payments for adult entertainment and gambling websites and now processes payments for companies including Visa and Mastercard, has appointed investment bank Houlihan Lokey to help.

More than a dozen banks, including ABN Amro and Commerzbank, are forming a creditor committee and have hired law firm Allen & Overy, two people close to the talks said.

Houlihan Lokey, A&O and the banks declined to comment.

Wirecard, which has long been held up as a rare German technology success, also withdrew its financial statements for 2019 and said it was examining cost cuts to address the crisis.

“The Management Board of Wirecard assesses … that there is a prevailing likelihood that the bank trust account balances in the amount of 1.9 billion EUR do not exist,” it said.

Wirecard said last week that auditor EY had refused to sign off its 2019 accounts as it was unable to confirm the existence of 1.9 billion euros in cash balances in trust accounts, about a quarter of its balance sheet.

EY had regularly approved Wirecard’s accounts in recent years, and its refusal to sign off for 2019 confirmed failings found in an external investigation by KPMG in April, which in turn followed investigative reports by the Financial Times.

Wirecard’s latest announcement follows the exit on Friday of former chief executive Markus Braun, who was replaced by James Freis, an ex-compliance officer at Germany’s stock exchange.

The company has been under scrutiny since a whistleblower alleged that it owed its success in part to a web of sham transactions. This culminated in a search for the missing cash, which last week hit a dead end in the Philippines.

The Philippine central bank said none of the money appeared to have entered the country, after Bank of the Philippine Islands (BPI) and BDO Unibank said documents purporting to show Wirecard had deposited funds with them were false.

BPI Chief Executive Cezar Consing said a certificate purporting to be for a Wirecard deposit was “spurious” and reiterated that no cash from the company had entered the bank.

Mirabaud analysts said Munich-based Wirecard’s membership of the blue-chip DAX index, which it gained in 2018, was now completely inappropriate and should be reviewed.

Wirecard, which operates both as an issuer of real and ‘virtual’ payment cards and as an acquirer on behalf of merchants, had marketed itself as a universal payments platform positioned to profit from the growth in digital payments.

($1 = 0.8938 euros)

Reporting by Kanishka Singh and Bhargav Acharya in Bengaluru; Additional reporting by Douglas Busvine in Berlin and Arno Schuetze in Frankfurt; Writing by John O’Donnell; Editing by Anil D’Silva, Christopher Cushing and Alexander Smith

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