Dresdner’s Subprime Loss Hurts Fourth Quarter Profits at Allianz
Europe's biggest insurer, Allianz, moved to shore up the $19 billion structured investment vehicle K2 managed by its Dresdner Bank unit and said it was rolling back its business in complex finance products hit hard by global credit turmoil.
Allianz also confirmed that it made record net profit of nearly 8 billion euros ($11.79 billion) in 2007, despite earnings that nearly halved in the fourth quarter as a result of big write-downs at Dresdner.
Allianz finance head Helmut Perlet said the market situation at the end of last month pointed to possible further write-downs at Dresdner of 300-400 million euros for the first quarter after about 1.5 billion euros of subprime write-downs in 2007.
Dresdner Bank announced on Thursday it was cutting back on its activity in structured investment vehicles (SIV) and other structured products at the root of the credit crisis and cutting 450 jobs, though most had already been shed.
"Dresdner Bank will reduce its engagement in the SIV business as the model of interest arbitrage faces a tough future," Allianz Chief Executive Michael Diekmann said.
Dresdner Bank said it would offer a support facility to its K2 structured investment vehicle to ensure repayment of all of K2's senior debt. Dresdner said it had reduced the size of K2 to about $18.8 billion now from $31.2 billion in July of last year.
"Dresdner Bank believes that the support for K2 is expected to have no significant impact on the capital base of Dresdner Bank Group," it said in a statement, adding that all K2's cash assets were investment grade, with no direct subprime exposure.
Allianz added that it was not clear whether, or to what extent, it might have to take K2 onto Dresdner's books.
Published on February 21, 2008
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