Germany

Germany extended another crisis tool to prevent corporate bankruptcies, a move that critics say will store up bigger problems later for Europe’s largest economy, Bloomberg News reported. The longer suspension on insolvency filings has raised alarm bells that it’s masking a growing credit risk that could explode into a wave of bankruptcies when the moratorium ends. It may also be creating a cohort of zombie companies that hold back investment and innovation and act as a drain on the economy.

The German economy contracted by a record 9.7% in the second quarter as consumer spending, company investments and exports all collapsed at the height of the COVID-19 pandemic, the statistics office said on Tuesday, Reuters reported. The economic slump was much stronger than during the financial crisis more than a decade ago, and it represented the sharpest decline since Germany began to record quarterly GDP calculations in 1970, the office said.

The collapsed payments company Wirecard has let go more than half of its remaining staff in Germany and terminated the contracts of its management board members, its insolvency administrator said, Reuters reported. News of the layoffs came as Wirecard’s demise amid an accounting scandal entered a new phase, with the official opening of insolvency proceedings on Tuesday. Michael Jaffe, the insolvency administrator, said “far-reaching” cuts were needed to keep Wirecard’s core business operational.

German coalition parties have agreed to extend a freeze on insolvency rules put in place to avoid a wave of corporate bankruptcies due to the coronavirus crisis, Finance Minister Olaf Scholz said on Tuesday, Reuters reported. Speaking to reporters in Vienna, Scholz said his centre-left Social Democratic Party (SPD) and Chancellor Angela Merkel’s conservative bloc sealed a compromise deal ahead of a coalition meeting scheduled later on Tuesday.

Wirecard inked a deal to sell its operations in Brazil, its insolvency administrator said on Friday, the first asset of global operations to sell after the company collapsed amid an accounting scandal earlier this year, Reuters reported. An agreement in principle has also been reached to sell some operations in Britain, and the process of selling its North American operations are well advanced with a deal expected “shortly”, the administrator said.

Concern is growing in Germany that a rule introduced as a part of the country’s emergency response to coronavirus is fuelling the creation of thousands of so-called zombie firms that could end up sapping the economy for years to come, the Financial Times reported. Under a government waiver introduced in March, German companies adversely affected by the pandemic do not have to file for insolvency. The rule was supposed to be phased out at the end of September, but justice minister Christine Lambrecht wants to extend it until next March.

There’s mounting scrutiny over the state-owned parent of BMW AG’s joint venture partner in China, Brilliance Auto Group Holdings Co. Investors are increasingly concerned about the Liaoning-based firm’s capacity to juggle its debt load as the pandemic weighs on profits, Bloomberg News reported. Concern is growing about the financial health of Brilliance Auto, the parent of Hong Kong-listed Brilliance China Automotive Holdings Ltd., which manufactures vehicles with the German carmaker in China via a joint venture.

Wirecard is to be deleted from Germany’s blue-chip Dax index, weeks after the payments provider’s spectacular collapse into insolvency following the revelation of a long-running fraud, the Financial Times reported. Once the country’s most celebrated financial tech group, Wirecard was first promoted to the Dax — which contains Germany’s 30 leading companies — in 2018, when it replaced the ailing Commerzbank.

Austria has experienced plenty of scandalous bank failures in the past decade, not least at Hypo Alpe Adria, the house lender of the late Freedom Party leader Joerg Haider, Bloomberg News reported. Yet the fraud that brought down tiny Commerzialbank Mattersburg im Burgenland AG raises questions for financial regulators and auditors that have uncomfortable echoes of the Wirecard AG debacle in neighboring Germany.

The number of business insolvencies among German companies decreased by 9.9 percent in May year-on-year to just above 1,500, the country's Federal Statistical Office (Destatis) announced on Monday, Xinhuanet reported. However, economic problems caused by COVID-19 had not yet been reflected by an increase in insolvencies due to the government suspension of filing for insolvency implemented in March, Destatis noted.