Check it off and look ahead – this is how Allianz boss Oliver Bäte is trying to solve his biggest and most expensive problem at the moment. The “Structured Alpha” scandal in the US will cost Allianz significantly more than 4 billion euros. Allianz Global Investors, a subsidiary of the Munich insurance group, had promised investors that their so-called “structured alpha” funds would bring higher profits than other investments and at the same time protect them against high fluctuations. Buyers were mainly large investors such as the pension funds of teachers in the state of Arkansas and subway drivers in New York. But the funds caused investors billions in losses as stock markets went berserk after the pandemic broke out in spring 2020. Investors then sued Allianz for around $6 billion, and the Securities and Exchange Commission and the US Department of Justice are also investigating fraud.
Allianz has already paid 3.7 billion euros to injured investors, but it will probably not stop there, Bäte hinted at the general meeting on Wednesday. How expensive it will be in the end, he did not want to say because of the ongoing processes. It is still unclear how high possible fines from the Justice Department and the Securities and Exchange Commission will be. Analysts consider a total burden of more than 5 billion euros to be conceivable. Bäte was still optimistic: “We want to get this over with legally and financially very quickly.”
The share price reacted by the afternoon with a slight fall to 215.40 euros. At the general meeting, the management had to put up with harsh criticism from investors and shareholder representatives. The high sums that the scandal costs insurers are “a lot of wood,” complained Daniela Bergdolt, vice-president of the German Association for the Protection of Securities. The losses are “an absolute catastrophe”, which is one of the reasons why the share price is languishing. Ingo Speich from Deka Bank also criticized that 2021 was a lost year for shareholders, as the Allianz share developed ten percent worse than the insurance sector as a whole. “Structured Alpha shook the foundations of confidence in Allianz management,” he said.
And yet the shareholders of Allianz and their boss remain loyal. Because CEO Bäte pulls out all the stops to keep them happy, it’s an expensive undertaking. Despite the burden of billions, the dividend should increase by 12.5 percent to 10.80 euros. In the coming years, at least 50 percent of profits are to be distributed, and the dividend is to increase by at least five percent every year.