The sale of Dresdner Bank, a deal which promised to change the face of Germany’s financial industry, has been thrown into doubt after its earnings collapsed and writedowns from the markets crisis spiraled.
Many investors hoped a sale would end the unhappy marriage to parent Allianz, once seen as an unshakeable financial powerhouse but which is now licking its wounds largely thanks to Dresdner. Talks with would-be buyers including Commerzbank are, however, dragging on as Dresdner languishes. Late on Wednesday Dresdner made writedowns from the financial crisis of more than $1 billion in the second quarter, taking the tally to almost $5 billion.
On Thursday, Allianz’s management warned that worse could follow, while remaining tight-lipped about ongoing sale talks. However, CEO Michael Diekmann said it was “not easy” to find solutions in the consolidation of Germany’s banking industry, cautioning against assuming that Dresdner would be sold. At the heart of the Frankfurt-based lender’s problems is its investment bank, which has kept Dresdner in the red for the past year -- the only big German bank to make losses over the entire course of the global markets crisis.
Problems at investment bank Dresdner Kleinwort pushed Dresdner to an operating loss of €566 million ($877 million) in the Q2 -- almost one billion euros lower than a year earlier -- forcing Allianz to make a profit warning on Wednesday.
“If you lose a billion on a bank, it’s hard to sell it,” said JP Morgan analyst Michael Huttner. “We were hoping that they would manage to sell the investment bank as well, but I think they’ll have to keep it.” Huttner’s comments were echoed elsewhere. “Dresdner Bank has been a complete disaster for Allianz. They have yet to earn a penny,” said Dieter Hein of Fairesearch. “The sale is obviously not working because Allianz wants too high a price.”
The architects of the Dresdner takeover in 2001 had hoped to sell bank accounts to Allianz customers as well as car insurance, for example, over the counter at bank branches. Instead, Dresdner racked up losses of almost 3 billion euros after the merger as cross-selling floundered.
The problems of the bank, whose green triangle logo is a familiar sight on German television, seemed to be over when it started making profits in 2005, only to be dragged back into the red by the global markets crisis. While Allianz’s stock price has been bolstered in recent months by speculation it was nearing a sale of Dresdner, it has still fallen by nearly a quarter so far this year, lagging European peers (Reuters)