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Allianz to raise $5bn after loss
MUNICH, Germany (Reuters) -- German insurer Allianz AG buckled under the weight of a global market downturn and huge 2002 losses, forcing it to launch a deeply discounted rights issue to fortify its battered cash reserves. Allianz's move to raise five billion euros ($5.31 billion) in new capital sends a new signal of urgency over the financial stability of Europe's biggest insurer by premium income, whose chief executive and that of its main loss maker Dresdner Bank have left prematurely. Its shares fell as much as eight percent. The capital boosting measures come just six weeks before new CEO Michael Diekmann takes over and include a 3.5-4.0 billion euro rights issue and the issue of other debt and equity linked securities of approximately 1.5 billion. Investors said Allianz's move comes at a difficult time with increased market uncertainty over the war in Iraq. "It's a very tricky time to be doing a thing like this and it shows how desperate they are,'' said a London-based fund manager who asked not to be named. "If the markets stay around this level or higher, then they'll be fine but if something goes wrong in the Gulf or there's a terrorist attack or something and the markets go down 10 or 15 percent, they're in trouble.'' Allianz also said it planned to cut its 22.4-percent stake in reinsurance giant Munich Re as part of the capital-raising measures. A banking syndicate including investment banks Deutsche Bank, Goldman Sachs, Schroder Salomon Smith Barney and UBS Warburg agreed to fully underwrite the 3.5 billion rights issue at a subscription price of at least 30 euros per share. "We want to improve our ability to compete from a position of strength,'' Allianz's outgoing Chief Executive Henning Schulte-Noelle said in a statement. ``We intend to achieve further profitable growth on the basis of this strengthened capital base and to do so organically.'' Record lossThe traditional source of Allianz's former enviable financial strength -- large stakes in several of Germany's industrial titans -- has become its source of weakness, as its capital base has been badly undermined by tumbling share valuations. The capital move, which was likely to stave off a credit rating cut, was announced along with a 1.2 billion-euro net loss for 2002, fuelled by 5.5 billion in writedowns on equity investments and 1.4 billion in banking losses. On Thursday, Allianz stock was the worst-performing share in the 31-strong DJ Stoxx European Insurance index, having lost more than three quarters of its value over the last 12 months. At 0947 GMT its shares had recovered some of their earlier loss, trading down 3.9 percent at 62.3 euros, though they lagged the sector index, which was down 0.2 percent. The company's market value dropped to as little as 17 billion euros, making it the fourth-biggest European insurer after its rivals Assicurazioni Generali of Italy, Dutch financial firm ING Groep and its French archrival AXA. Allianz also predicted ``significant improvements'' in its operating business but warned that market uncertainties or the lack of an economic pick-up would trigger further writedowns and loan-loss provisions of the type that dragged down its 2002 results. Allianz's banking business, a major part of which includes the troubled unit Dresdner Bank, proved a huge drag on group earnings, ending the year with a loss of 935 million euros after tax on a standalone after loan-loss charges soared to 2.2 billion as a result of rising insolvencies. The loss, which confirmed a Reuters report on Wednesday, came a day after the insurer confirmed it had poached the head of Deutsche Bank's retail operations, Herbert Walter, to replace the ousted chief of Dresdner, Bernd Fahrholz. Copyright 2003 Reuters. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.
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