Thursday February 26, 08:17 PM
Allianz pays dearly for troubled Dresdner Bank
By Etienne Balmer
MUNICH, Germany (AFP) - The German insurance giant Allianz plunged into the red last year owing to problems at its banking unit Dresdner Bank, which is now a concern for its new owner, Commerzbank (Xetra: 803200 - news) .
"All did not go as planned," Allianz chairman Michael Diekmann commented soberly Thursday, on the seven years during which his company owned what was once the third largest German bank.
In 2008, Dresdner forced its former parent to book a charge of 6.4 billion euros (8.2 billion dollars), pushing the insurance group into a net loss of 2.4 billion euros.
Allianz expects to take charges worth another 400 million euros in the first quarter of 2009 related to Dresdner even though the bank is no longer a part of its accounts.
Dresdner's sale, decided in August and finalised in January, puts an end to the "bankinsurance" model foreseen by Allianz when it bought Dresdner in 2001 for 24 billion euros.
The establishment founded in Dresden in 1872 was already on the decline, as it lost ground in the investment banking sector to rival Deutsche Bank (Xetra: 514000 - news) .
Diekmann told a press conference in southern Munich: "We managed to overcome the consequences of the financial crisis in 2002 and 2003 and were on the right path, until the second half of 2007," when the US subprime and international financial crises erupted.
A mooted sale of Dresdner Kleinwort never took place. "We lacked the necessary conditions and especially the candidates" ready to buy the investment banking unit, Diekmann said.
When the financial crisis worsened in September following the failure of US investment bank Lehmann Brothers, Commerzbank renegotiated the purchase of Dresdner Bank, which it finally acquired for 5.1 billion euros.
That was nearly half the initial price, and the deal was wrapped up six months ahead of schedule.
But Commerzbank has had problems of its own since agreeing to the transaction, and had to call on the state twice in two months for financial aid, getting more than 18 billion euros in fresh funds in exchange for a partial nationalisation.
The German government now owns around 25 percent of Commerzbank's capital.
On Thursday, Commerzbank said "problems" would have to be quickly resolved at Dresdner Kleinwort, but did not provide details.
Dresdner Bank posted an operating loss of 5.6 billion euros for 2008, including 3.9 billion for the fourth quarter alone, mainly owing to a heavy exposure to risky investments.
The bank (NASDAQ: TBHS - news) took provisions against risky investments worth a total 1.7 billion euros last year, of which 1.3 billion were booked in the final three months of the year.
Finance director Klaus Rosenfeld has not given any forecasts for 2009, but said the bank suffered further from the financial crisis in January.
Allianz now owns 13.8 percent of the "new Commerzbank," which has fully integrated Dresdner Bank in its accounts.
The insurance company did not cover the risks of a devaluation of Commerzbank shares, which it obtained at 4.56 euros per share, Diekmann said.
In late Frankfurt trading on Thursday, Allianz shares had leapt by 13.94 percent to 56.0 euros, while Commerzbank was up by 0.72 percent at 2.81 euros.
The DAX index of German blue-chips was 3.40 percent higher overall.
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