Dresdner Posts Q1 Loss; Allianz Confirms Profit Decline

May 9, 2008

Dresdner Bank stayed in the red in the first quarter after writing down €845 million ($1.3 billion) on structured finance investments, keeping it in the spotlight as parent Allianz works to split it in two.

Dresdner posted a quarterly operating loss of €453 million ($700 million), about the same level as in the fourth quarter, and Allianz said it was not possible to give a meaningful forecast for earnings at the lender due to financial market uncertainty.

“We do not expect that the years 2008 and 2009 will make up for the shortfall in 2007,” Europe’s biggest insurance group said of its banking arm.

Dresdner said in March it would split itself in two — a retail bank and investment bank, Dresdner Kleinwort — to play a more active role in industry consolidation.

“The pressure to overhaul the banking business has once again risen,” LBBW analyst Robert Mazzuoli said in a note.

Allianz’s shares had fallen 1.6 percent to €128.27 ($198.34) by 07:12 GMT, compared with a 1.2 percent decline among European insurance peers.

Speculation that the Dresdner parts could be sold or merged has periodically boosted Allianz’s share price. Traders and analysts have examined multi-merger combinations with Germany’s other big banks, such as Deutsche Bank, Commerzbank and Postbank, but do not rule out foreign interest from the likes of Spain’s Santander. Those banks have all declined comment on the speculation.

Allianz bought Dresdner in 2001 in a €24 billion [$20.5 billion at the time – See IJ web site – https://www.insurancejournal.com/magazines/west/2001/04/09/features/17953.htm] One shareholder described it as the biggest disaster in German industrial history. Dresdner racked up losses of almost €3 billion ($4.638 billion) after the merger.

That unhappy track record, combined with the latest downturn, will make potential buyers wary, even if its writedowns are not in the league of rival Deutsche Bank’s €2.7 billion ($4.174 billion) in the first quarter.

The crisis has not forced Germany’s commercial banks to turn to shareholders to raise cash, as Swiss rival UBS and the UK’s Royal Bank of Scotland have done.

But Allianz on Friday warned that an end to the market turbulence blasting the sector was not yet in sight.

“Although we are seeing somewhat lesser tension in U.S. residential mortgage prices as well as cautiously rebounding equity markets, it is hard to predict when the stormy weather will end,” finance chief Helmut Perlet said in a statement. “While 2008 will remain a challenging year, the longer this environment persists, the harder it will also be to achieve our medium term outlook,” he said, adding that Allianz was well positioned for when markets return to normal. Dresdner’s operating loss was worse than the €398 million ($615 million) average loss expected in a Reuters poll of 11 analysts.

Asset management also performed worse than expected in the Reuters poll, while Allianz’s insurance operations fared better than expected.

Europe’s biggest insurer on Friday confirmed its first quarter results (See IJ web site – https://www.insurancejournal.com/news/international/2008/04/29/89539.htm) after announcing key figures late last month. Group quarterly operating profit fell 35 percent to €1.856 billion ($2.869 billion,) from €2.87 billion ($4.436 billion) a year earlier.

Net profit declined 65 percent to €1.15 billion ($1.777 billion) from €3.24 billion ($5.008 billion) in the first quarter of 2007, which Allianz said was mainly due to its decision not to sell investments while stock markets were down.

(editing by Will Waterman)

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