Although the industry continues to mock Allianz’s purchase of Dresdner Bank, the German insurer begs to differ. Yes, the investment and corporate banking business is struggling – but the real value in the takeover lies in increased distribution for Allianz’s insurance products, and the opportunity to grow retail market share as investors seek security.
Industry observers are skeptical about the merits of Allianz’s takeover of Dresdner Bank.
German insurer Allianz saw its share price begin to dip soon as it acquired Dresdner Bank – and the bank this month reported a half-year loss of just under $1 billion, prompting Allianz to issue a profit warning. Many people expect the insurer to sell off the troubled bank.
Like its peers, Dresdner has been a victim of weak M&A activity, declining advisory services revenues and commissions, and smaller trading revenues. However, it’s not the only victim: even Allianz has had to write down its portfolio by almost $2 billion, due to plummeting equities prices.
While Dresdner has worked hard recently to cut costs, success to date has been nominal. Costs are down 14% – but the bank still spends 99 cents to earn a dollar. Given that most leading banks operate in the region of 55-80%, Dresdner must do something about this very soon.
The bank has also been hit by a sharp increase in bad debt provisions, exceptional losses from the bankruptcy of Kirch, exposure to Latin America and volatility in the telecommunications sector. But Dresdner hasn’t faced these problems alone: one would be hard pushed to find any global bank that had not been hit by the growing credit crunch, the turmoil in Latin America and assorted corporate scandals.
Allianz believes it can strengthen Dresdner’s faltering corporate and investment banking arm. Meanwhile, one of the key drivers behind the deal is working well: sales of insurance policies through Dresdner’s retail branches have increased fourfold since the beginning of the year.
Performance to date has been fallen below expectations, but Allianz is still committed to Dresdner – or its retail business, at least. And if the corporate and investment banking turnaround doesn’t succeed, there’s always the possibility of a flotation or trade sale to a hungry French or Italian bank that could easily expand on the bank’s German and British strongholds.
Related research: Datamonitor, European Financial Markets Technology Strategies
You can download a FREE financial services report from www.dmfreereports.com