Dresdner losses weigh as Allianz breaks up bank

By Jonathan Gould Reuters - Friday, May 9 12:41 pm

FRANKFURT (Reuters) - Fresh writedowns approaching 1 billion euros (793.3 million pounds) kept Germany's Dresdner Bank firmly in the red in the first quarter, adding to pressure on parent Allianz to cut its losses and break it up.

Dresdner posted a quarterly operating loss of 453 million euros, about the same level as in the fourth quarter, and Allianz said it was not possible to give a meaningful forecast for earnings at the bank due to financial market uncertainty.

"We do not expect that the years 2008 and 2009 will make up for the shortfall in 2007," Europe's biggest insurance group said of its banking arm.

In addition to 845 million euros of writedowns on structured investments, Dresdner also took hits of 95 million from its exposure to monoline insurers and 19 million to take its K2 structured investment vehicle fully onto its balance sheet.

Allianz plans to split Dresdner into a retail bank and an investment bank, Dresdner Kleinwort, a move which it says would help it play an active role in industry consolidation.

Allianz aims to complete the split by the end of August, with the focus on the simpler task of carving out the retail bank from the rest, Allianz finance chief Helmut Perlet told journalists in a conference call.

There is no timetable for what to do with investment bank Dresdner Kleinwort, Perlet said.

Speculation that the Dresdner parts could be sold or merged has periodically boosted Allianz's share price.

Allianz shares pared losses following Perlet's comments and were trading down 1.6 percent by 11:50 a.m., better than a 2.1 percent drop among European insurance peers .

Traders and analysts have examined combinations of Dresdner with other big German banks, such as Deutsche Bank , Commerzbank and Postbank , but do not rule out foreign interest from the likes of Spain's Santander .

Those banks have all declined comment on the speculation and Perlet on Friday said the field was wide open.

"We have to look at all possible options and not become fixed on just one potential solution," he said, adding that Allianz valued Dresdner at around 12 billion euros on its books.

"Everyone is speaking to everyone," he added.

INSURANCE MERGERS

Allianz bought Dresdner in 2001 for 24 billion euros, a deal once described by one shareholder as the biggest disaster in German industrial history. Dresdner racked up losses of almost 3 billion euros after the merger.

That unhappy track record, combined with the latest downturn, will make potential buyers wary, even if its writedowns are not in the league of rival Deutsche Bank's 2.7 billion euros in the first quarter.

The crisis has not forced Germany's commercial banks to turn to shareholders to raise cash, as Swiss rival UBS and Britain's Royal Bank of Scotland have done.

The pressure to raise funds is pushing some banks like RBS to unload their insurance arms, presenting fresh chances for Allianz and other insurers to buy market share.

"As far as RBS is concerned, of course we too are looking selectively at the market to see if there are assets that we can pick up at attractive prices," Perlet said.

Perlet also said he expected the financial market turbulence blasting the sector to last a while longer, dampening the economy and squeezing credit.

"Although we are seeing somewhat lesser tension in U.S. residential mortgage prices as well as cautiously rebounding equity markets, it is hard to predict when the stormy weather will end," Perlet said.

"The longer this environment persists, the harder it will also be to achieve our medium-term outlook," he said.

Dresdner's operating loss was worse than the 398 million euro average loss expected in a Reuters poll. Allianz's asset management division also performed worse than expected in the poll, while insurance fared better.

Allianz group net profit declined 65 percent to 1.15 billion euros from 3.24 billion in the first quarter of 2007, which Allianz said was mainly due to its decision not to sell investments while stock markets were down.

(Editing by Will Waterman and Quentin Bryar)

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