Allianz (ETR:ALVG), a German insurance company, said on Wednesday it will set aside another 1.9 billion euros ($2 billion) as it awaits the result of US regulatory probes into a multibillion-dollar trading scandal at its funds unit.
During the pandemic market turbulence in early 2020, a $15 billion set of investment funds collapsed, casting a long shadow over Germany’s most valued financial institution and one of the world’s major asset managers.
The additional provision is in addition to the 3.7 billion euros set aside by the business in February to handle legal and regulatory inquiries into the funds’ collapse in the United States. The amount now stands at 5.6 billion euros.
Allianz said Wednesday’s booking impacted its first-quarter net profit, which came in at 600 million euros, compared to the 1.9 billion euros analysts predicted.
According to Allianz, the funds’ failure is being investigated by the US Justice Department and the Securities and Exchange Commission, and is the subject of multiple investor lawsuits.
“The new fee clearly demonstrates the immense harm that has been done,” said Ingo Speich, head of sustainability and corporate governance at Deka, a major Allianz shareholder.
The new provision, according to Allianz, should cover any outstanding expenditures. The feeling of confidence signals that a deal with the US administration is on the cards.
Allianz stated, “This provision recorded reflects a realistic assessment of its remaining financial risk in connection to compensation payments to investors and payments under any outcome of the governmental actions.”
Allianz said it wanted to resolve its conversations with the DOJ and SEC “as soon as possible.”
In late Frankfurt trading, its shares were up 3%, surpassing the DAX index of blue-chip firms, which was up 1%.
“Allianz appears to be getting closer to a resolution on the risk from the…funds,” said Steffen Weyl, a fund manager at Union Investment, an Allianz shareholder.
The provision, according to Jefferies analysts, eliminates “a major overhang on the shares” by coming earlier and smaller than expected.
CEO Oliver Baete has apologised to investors and shareholders, admitting that “not everything in the fund management was ideal.”
As a result, last year’s incentives were reduced for Baete and other senior executives, however Baete earned 9% more in 2021 than the previous year.
The scandal has alarmed Allianz’s senior shareholders and damaged the company’s reputation among pension funds, which are a major source of revenue for one of Germany’s most well-known businesses.
The problem is around Allianz funds that generated gains through complicated options techniques but suffered large losses when COVID-19 spread provoked violent stock market volatility in February and March 2020.
The problem has already harmed profitability for Allianz, which manages 2.6 trillion euros in assets. The profit in 2021 was the lowest since 2013.
In lawsuits filed in the United States, investors in the so-called Structured Alpha funds have sought $6 billion in damages for their losses.
The funds catered to traditionally conservative US pension funds, including those for Alaskan labourers, Arkansas teachers, and New York subway workers.
In the aftermath of the collapse, the Arkansas Teacher Retirement System was the first of at least two dozen lawsuits filed against Allianz.
In a complaint filed in July 2020, the Arkansas pension fund, which had $1.6 billion in three Structured Alpha funds at the end of 2019, claimed it had lost at least $774 million owing to “negligent administration” of the funds.
According to board meeting minutes, it received a $642 million settlement.
($1 = 0.9489 euros)
