Allianz Profits Collapse

Insurance giant Allianz AG on Wednesday evening issued a shock profit warning and revealed a far-reaching restructuring program for Dresdner Bank, after its banking subsidiary was held responsible for most of the loss of 350 million euro that the group booked in the second quarter.

Allianz said that after incurring the 350 million euro loss in the second quarter, it could no longer uphold its forecast of a 3 billion euro full-year profit. The announcement was made just before the close of trading in Frankfurt, and Allianz shares nosedived to almost 12 percent lighter at 145.30 euro.

Allianz pointed to the weak performance of the capital markets as the main reason for its profit warning, saying this had hit its banking business particularly hard.

Savings measures initiated earlier had not been enough to offset the losses. Insolvencies and the crises on Latin American markets had also weighed on credit portfolios. The group provided no further details.

Following the latest development, Allianz announced rigorous rationalization measures at Dresdner Bank, which it acquired more than a year ago. Remaining credit portfolios of customers outside Europe are to be transferred to an independent cost center.

Dresdner has been withdrawing from lending business outside Europe since 2000. The latest measures are aimed at freeing up just under 3 billion euro in risk capital.

Allianz also plans to cut Dresdner's corporate center significantly and transfer a number of service functions to its own group center in order to “massively slim down” the banking center. Savings measures will also be stepped up. Some 2 billion euro are to be shaved off material and personnel costs, up from the previously envisaged 1.3 billion euro.

Allianz did not reveal to what extent further job cuts are to contribute to savings. The overall program was aimed at returning Dresdner Bank to profit without any further divestments, Allianz said.

Up to now, chief executive Henning Schulte-Noelle and his deputy, Bernd Fahrholz, have showed themselves to be relatively unconcerned by the difficulties of the group’s banking business. But Dresdner already burdened Allianz’s first-quarter results with a loss of 110 million euro.

Its Corporations & Markets division, which includes investment bank Dresdner Kleinwort Wasserstein (DKW), has provided particular cause for concern.