Shares in Swiss core banking vendor Temenos have plunged, after Hindenburg Research shorted the company alleging "accounting irregularities, failed products and an illusive turnaround".
The US investment research firm says a four-month investigation into Temenos, involving interviews with 25 former employees, including senior leaders at the company, uncovered hallmarks of manipulated earnings and major accounting irregularities.
"This includes evidence of roundtripped revenue, sham partnerships, rampant pulling forward of contract renewals, backdated contracts, excessive capitalization of seemingly non-existent R&D investments, and other classic accounting red flags."
The activist investment firm points to a string of failed product installations, and irregular licencing agreements allegedly intended to help the vendor hit its yearly targets.
"These aggressive accounting practices seemed to be an open secret among many of the former employees we spoke with," writes Hindenburg. "Several indicated that CEO Andreas Andreades encourages the practices, which help gloss over significant customer product dissatisfaction and attrition."
The research points to a run of failed installations and frustrated customers in North America:
- "US-based Unify Financial Credit Union signed on with Temenos in September 2018. It sued Temenos for fraudulent inducement and negligent misrepresentation by December 2021, claiming that Temenos oversold its cloud capabilities and that its software was so unstable that Unify had to revert to its old system two months after going live.
- "US-based First Fidelity Bank signed on with Temenos in December 2019. It sued Temenos for breach of contract and fraudulent misrepresentation in 2022, saying it was 'fed up with Temenos’ excuses and delays'.
- "US-based Grasshopper Bank went live with Temenos’ core software in 2019, only to abandon it 4 years later after numerous implementation issues. A former executive from Grasshopper told us that its entire new bank launch was put on hold 'largely because of Temenos’ implementation strategy', which they described as 'excruciating'.
- "US-based Varo Bank went live with Temenos’ core banking software in September 2020, and is currently highlighted as a 'success story' on Temenos’ website. Former Varo employees described the implementation as a 'horrible experience' that left them 'forever scarred'."
The Hindenburg report has led to a sharp drop in the vendor's share price, which slipped by 25% in morning trading.
In a statement issued late afternoon Temenos says it fundamentally refutes the report published by Hindenburg Research.
States the company: "The report contains factual inaccuracies and analytical errors, together with false and misleading allegations, which are intended to adversely impact the Company’s share price. The Company was not contacted in advance for any comment on the report.
"The Company is confident in the strength of its business, financial performance and cash position."