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Structured Alpha investigation could impact future Allianz results

2nd August 2021 - Author: Matt Sheehan

Global insurer Allianz has warned that an ongoing investigation by the US Department of Justice (DOJ) into the Structured Alpha Funds of its Allianz Global Investors could “materially impact future financial results” of the group.

AllianzThe US Securities and Exchange Commission (SEC) launched an investigation into the Structured Alpha Funds in 2020 after pension funds said Allianz had failed to safeguard their investments throughout the financial volatility caused by the pandemic.

The DOJ has now begun its own investigation and Allianz has received requests from both government bodies for documents and information relating to the Funds.

In response, and given the uncertainty surrounding the timing and outcome of the SEC and DOJ investigations, Allianz warned that its financial performance could be directly impacted.

“In light of the DOJ investigation and based on information available to Allianz as of today, the Board of Management of Allianz SE has reassessed the matter and has come to the conclusion that there is a relevant risk that the matters relating to the Structured Alpha Funds could materially impact future financial results of Allianz Group,” the company said.

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Allianz share prices have already fallen 7% since yesterday, and analysts have warned that a possible resolution may include a fine that would eat into the group’s future earnings and possibly capitalization.

For instance, while it acknowledged that the consequences of the investigation remain “highly unpredictable,” S&P Global Ratings said that the potential costs could be “substantial” and could even prompt a reconsideration of the group’s earnings or capitalisation.

On the other hand, analysts at RBC Europe suggested that the 7% decline in share price is an “overreaction” and maintained that Allianz should not be financially challenged by any potential fines.

“Any investigation is likely to provide an overhang on the shares,” RBC stated. “This overhang will only be removed once the amount of any settlement is clear, even if the company has sufficient capital to pay the settlement. With around €12bn in surplus capital above its target level as at Q1, we do not see any concerns in the company’s ability to pay any fines.”

RBC further noted that any fines would be substantially lower than the largest fines issued by the DOJ to date following the financial crisis, which topped out in the low-single-digit billion dollar region.

Despite this, any lasting impact to share prices could still impact Allianz’s ability or desire to pay additional capital returns over and above the ordinary dividend.

Panic due to the pandemic negatively affected many investors last year but Allianz is so far the only top-tier asset manager to face numerous lawsuits over the issue in the US. The lawsuits allege that the insurer’s investment unit did not stick to a strategy of using options to protect against a short-term financial market crash.

The investigation into the Structured Alpha Funds, which are thought to have had $13 billion of assets under management at their pre-pandemic peak, follow the closure by Allianz of two private hedge funds last year following severe losses.

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