By Arindam Nag
A DOW JONES NEWSWIRES COLUMN
LONDON (Dow Jones)–Allianz is a favourite punching bag for critics of the banking-insurance business model in Europe.
But the German company has emerged relatively unbruised from the third quarter despite the credit-market crisis.
Allianz and banking unit Dresdner avoided heavy asset writedowns and trading losses, while there are signs Allianz is starting to get the bank to mesh better with its insurance activities.
Allianz’s banking business didn’t come through unscathed. It reported a 24% decline in operating revenues with its trading business suffering a loss of EUR204 million, down from a EUR269 million profit last year. That includes a EUR350 million writedown on its asset backed securities exposure.
But a detail of the writedown merits attention.
Allianz’s second-quarter net ABS portfolio stood at EUR10.6 billion. Three months later it was EUR7.9 billion.
So the writedown represents 13% hit in reducing its portfolio by EUR2.7 billion. That’s not bad. If the credit markets improve and fourth-quarter writedowns come in below 10% of the rest of the portfolio, Allianz will have taken a hit of less than EUR800 million – not insignificant but small compared with the writedowns at U.S. banks.
Allianz isn’t out of the wood yet, though. It’s subprime portfolio rose to EUR2 billion because EUR1.4 billion of super senior CDOs were rerated subprime. It still has EUR4.5 billion of super senior CDOs on its books.
But these are short-term negatives that Allianz can live with.
More important is the degree of cross selling now going on between Allianz and Dresdner.
So far this year Allianz agents got 181,000 new clients for Dresdner, 50,000 of them in the quarter. Around 25% of Allianz’s new life insurance business and 21% of new property-casualty business came from the Dresdner franchise. That’s up from 13% and 5% respectively in 2006.
It seems to show the benefit of having a dedicated Dresdner presence at 100 Allianz branches in Germany.
Dresdner’s net interest and commission income were up 4% and 9% respectively in the third quarter. In the first nine months overall net banking revenue was flat.
If the bank can show that sort of performance for the whole year it will be an achievement in the most difficult trading environment since Allianz began integrating Dresdner in 2002.
To the degree that’s all evidence Allianz has developed an integrated stream of banking and insurance revenues it’s a major step toward generating long awaited returns from the Dresdner acquisition.
It would contrast with disappointment over mixed results at Allianz’s hybrid rivals in Europe like ING and Fortis.
True, Dresdner’s investment bank adds a degree of riskiness to Allianz that rivals lack. But when financial markets turn around, a small but stable investment banking franchise, backed by Allianz’s balance sheet, should deliver incremental earnings growth.
(Arindam Nag, a Senior Writer for Dow Jones Newswires, has covered business and finance for 16 years in Asia, Europe and the United States. He can be reached at +44 207-842-9289 or by e-mail: arindam.nag@dowjones.com)
