Allianz SE, Europe's biggest insurer, said a loss at Dresdner Bank and lower profit at its insurance divisions drove earnings down 65 percent in the first quarter.

Net income declined to 1.15 billion euros after Dresdner posted a loss of 513 million euros, the Munich-based insurer said in a statement. Allianz provided a breakdown of first-quarter results yesterday after publishing some initial figures on April 29.

Dresdner, bought by Allianz in 2001 for 23.5 billion euros, wrote down asset-backed securities by 845 million euros in the quarter, adding to 1.3 billion euros in markdowns last year. The world's biggest banks and financial institutions have reported about $321 billion of writedowns and credit losses related to the collapse of the US subprime mortgage market.

"Dresdner remains Allianz's biggest issue," said Lucio di Geronimo, an analyst at UniCredit in Munich who recommends buying Allianz shares. "As long as they haven't found a solution for corporate and investment banking their capital resources are too limited to pursue larger acquisitions."

Allianz fell 2.04 euros, or 1.6 percent, to 128.33 euros by 1:16 pm in Frankfurt trading. The shares declined 21 percent over the last 12 months, valuing the insurer at about 58 billion euros.

"2008 will remain challenging," Chief Financial Officer Helmut Perlet said.

"The longer this environment persists the harder it will be to achieve" Allianz's goal to increase operating profit by an average of 10 percent until 2009, he said.

Allianz's banking division, which mainly consists of Dresdner, posted a loss of 538 million euros in the quarter, compared with a profit of 625 million euros a year earlier.

"We knew it would be bad at Dresdner, but not this bad," said Manfred Jakob, a Frankfurt-based analyst at SEB AG with a "strong buy" rating on Allianz. "Something has to be done."

Chief Executive Officer Michael Diekmann announced plans last month to separate the Dresdner Kleinwort investment-banking unit from Dresdner's business with private and commercial clients to pursue options including a sale of the securities unit and a merger for the remainder.

Dresdner's investments in asset-backed securities totaled 8.1 billion euros at the end of the quarter.

That includes 1 billion euros of collateralized debt obligations, which repackage bonds into new securities with varying risks, and 900 million euros of US residential mortgages-backed securities.

Allianz regards those securities as the most at risk because they have been the most affected by financial markets turbulence, the insurer said in the quarterly report filed on its website yesterday.

Agencies

(China Daily 05/13/2008 page17)