Why are analysts warning about high-risk merchant portfolios after Worldline's scandal?

Analysts are cautioning about high-risk merchant portfolios following Worldline’s scandal for several reasons:

1. **Revenue Impact**: Worldline has been exiting high-risk merchant contracts, resulting in a significant revenue decline of €130 million. This strategic move, although necessary to mitigate risks, has an immediate negative impact on revenue.
2. **Market Valuation Drop**: The company’s market valuation, which reached €24 billion about four years ago, had fallen below €1 billion after the scandal allegations. This decline in market value reflects investor uncertainty about the company’s future financial health.
3. **Rating Agency Concerns**: S&P Global Ratings downgraded Worldline’s long-term issuer credit rating to BB from BBB-, indicating a negative outlook. This downgrade is a result of expected revenue decline due to hardware delivery issues and the termination of high-risk merchants.
4. **Fraud Allegations and Cover-up**: Worldline was accused of covering up fraud by some customers, which not only damaged its reputation but also led to a plunge in its share price. Allegations of involvement with high-risk sectors like adult entertainment, gambling, and dating websites further tarnished the company’s image.
5. **Strategic Changes and Uncertainty**: The company has hired an external firm to review its portfolio of risky clients, indicating a shift in strategy. However, the process of assessing and addressing these risks is ongoing, adding to the current uncertainty.

In summary, analysts are warning about high-risk merchant portfolios after Worldline’s scandal due to the potential for continued revenue decline, market valuation drop, rating agency concerns, fraud allegations, and strategic changes that could affect financial stability and investor confidence.