Alexander Darwall has sold out of one of his investment trust’s top-10 portfolio positions after it was the subject of a short attack mere months after the Wirecard blow-up rocked his investment trust.
Grenke, a German financial services provider listed on the MDax index, came under fire on Monday by short-seller Viceroy Research which made a host of allegations against the company in a 64-page report.
According to Darwall’s European Opportunities Trust’s latest factsheet, dated 31 August, Grenke was the ninth largest holding, accounting for 5.25% of the portfolio.
But a statement to the London Stock Exchange on Tuesday at 4.49pm said: “The company announces that, as of 15 September 2020, it held no shares in Grenke AG.”
Portfolio Adviser has asked Devon Equity Management about the exact timing of the sale.
It comes after Darwall was forced to dispose of his entire stake in the now defunct payments company Wirecard on the day it revealed €1.9bn in accounting anomalies. The stock previously occupied 10.3% of the European Opportunities portfolio.
Grenke’s shares were down 24% at midday on Wednesday, meaning the share price has dropped 64% year to date.
According to Reuters, German financial watchdog BaFin is investigating allegations of market manipulation by Grenke.
Grenke denies the allegations
Grenke has stringently denied the claims made by Viceroy Research. In a statement on its website it said the report “contains allegations which Grenke strongly rejects”.
“A central accusation is that a substantial portion of the €1,078m in cash and cash equivalents reported in the 2020 half-year financial report does not exist. This is demonstrably false. €849m, which is almost 80% of the cash and cash equivalents, were held in Deutsche Bundesbank accounts on June 30, 2020 as published in the 2020 half-year financial report. As of today, the credit balance at the Bundesbank amounts to €761m.
“In addition, the 64-page report contains numerous other unfounded allegations. Grenke AG is currently also preparing a detailed reply to these accusations and will respond to them.
“Grenke reserves the right to take legal action and will initiate such action accordingly.”
Argonaut took short position in Grenke two years ago
Argonaut fund manager Barry Norris took out a short position in Grenke in July 2018 following meetings with the company.
Norris, manager of the Argonaut Absolute Return fund, said: “Grenke’s business model always seemed too good to be true: exponential growth in assets, phenomenal lending margins with an exceptionally low cost of risk and apparently no competition.
“Our research indicated limited credit checks before financing was advanced, meaning that the low provisioning for likely defaults seemed very aggressive. Modest average ticket sizes didn’t convince us that the market for this type of financing should have such an attractive growth dynamic.
“Furthermore, its relationships with its franchisees – who are reportedly driving the demand for financing and were bought out on pre-agreed multiples after just a few years – seemed at best obscure and clearly require further disclosure.”
Norris said “successful” fintech shorts have been like London buses so far in 2020.
“You wait ages for one to come along like Wirecard and then they all come along at once.”
Wirecard was the largest short position in the Argonaut Absolute Return fund at the time of the accounting scandal which brought it down.
