Allianz Prepares for Sale of Dresdner Kleinwort


Allianz is planning to break up Dresdner Bank in a move that paves the way for a sale of investment banking laggard Dresdner Kleinwort and an end to a marriage many investors wished never happened.

The bank said on Friday that it will split itself in two -- a retail bank and investment bank, Dresdner Kleinwort -- to play a more active role in industry consolidation.

Europe's biggest insurer bought Dresdner in 2001 in a 24 billion euro ($37 billion) deal a shareholder once described as the biggest disaster in German industrial history.

The architects of the takeover had hoped to sell bank accounts to Allianz customers as well as car insurance, for example, over the counter at branches. Instead, Dresdner racked up losses of almost 3 billion euros as cross-selling floundered.

It then appeared to turn the corner with modest profits before financial market ructions pulled it back into the red again in recent months.

Allianz Chief Executive Michael Diekmann has come under continued pressure from shareholders to consider a sale of Dresdner or at least the investment bank.

But Dresdner has had some support in Allianz's management board. Its position in the group was staunchly defended by Paul Achleitner, the former Goldman Sachs banker who was one of the architects of the takeover.

Pressure to act intensified recently, however, after Dresdner Kleinwort racked up losses towards the end of last year from investments in subprime and other risky debt.

Now Europe's largest insurer wants to break it off with a view to selling it.

Doing the Splits

Allianz will be left with a retail bank which it could strengthen through acquisitions. Germany's biggest retail bank and Dresdner rival Postbank, is, for example, up for sale.

Many see such a move, given the hail of criticism which followed Dresdner, as unlikely.

Michael Huttner, an analyst with JP Morgan, welcomed the preparations for a sale of Dresdner Kleinwort but said the auction should not stop there.

"I would prefer that they sell it (Dresdner's retail bank)," he said. "It would make a lot of sense for Allianz to retain some link to a retail bank, but I'm not sure that they need to own 100 percent of one to achieve that."

"An elegant solution would be for Allianz to do a joint-venture of the retail part of Dresdner with some other German bank, and emerge with a smaller stake in a bigger retail operation, maybe with exclusive distribution," he said.

The problems of the bank, whose green logo is a familiar sight on German television, have tarnished Allianz's image as an immovable financial powerhouse, dragging its share price down to about a third of what it was before the 2002 crash.

Investors responded positively to the news and Allianz's stock, which had been trading down before the announcement. Shares closed largely flat on the day.

Diekmann has been credited with turning around the group since taking charge after what his predecessor Henning Schulte-Noelle described as the "terrible year" of 2002 that forced his own departure.

Heavy losses from a dive in the value of its stock market investments saw the insurer's market value plumb a record low of 22 billion euros.

Diekmann has since boosted the profitability of its insurance work and cut costs to pull Dresdner out of the red. Profits in the meantime have more than doubled from their 2003 level to 8 billion euros last year.

But market turbulence following the collapse in the value of subprime mortgages and continued problems at Dresdner sent its stock into a tailspin in recent months.