At least 3.7 billion euros cost the alliance of the Structured Alpha scandal in the United States. Investors had sued the insurance company for around six billion dollars, the US Department of Justice is investigating fraud. Allianz boss Oliver Bäte announced on Friday that an agreement had been reached with most of the plaintiffs and that talks were continuing with the authorities. “We believe that these settlements represent the majority of our exposure to structured alpha and we are providing fair compensation for the losses suffered by investors, which we regret,” said Bäte. The whole thing is not over yet, the thing can become even more expensive, but also cheaper.
A two-year-old scandal is catching up with Allianz. February and March 2020 were wild months for the stock markets. Back then, many investors realized that Covid-19 would not remain a regional or short-term phenomenon. On March 9, 2020, the Dow Jones index experienced the sharpest daily loss in its history. Most investors who simply held onto their shares at the time were able to recoup their losses after just a few months. But those who wanted or had to sell were in a bad position.
Allianz Global Investors (AGI), a subsidiary of the Munich group, was on the US market at the time with a special offer: their structured alpha funds would bring investors 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.
The storm on the stock exchanges dismantled the Allianz system. The funds made heavy losses, and Allianz even had to close a number of them at the end of March. She had gambled. The first investors filed suit in the summer. The accusation: After high fund losses in February, AGI violated its fiduciary duties and gave up the agreed risk controls in order to make up for the losses through risky deals, but lost even more money in the process.
The allegation of fraud is in the room
Allianz could have put up with all that. Investor lawsuits after losses are rarely successful. But the US Department of Justice, which is also the country’s top public prosecutor’s office, has been investigating for the past six months. The allegation of fraud is in the air: the AGI managers would have given their investors sugarcoated data.
February and March 2020 were wild months for the stock markets. At times, the Dow Jones index lost significant value.
(Photo: Mark Lennihan/AP)
Allianz said in autumn 2020 that the complaints from investors were “untrue and without basis”. The tone has changed abruptly since the judiciary intervened. Allianz now not only wants to pay, but also wants to investigate the incident in detail. The bonus payments to the board members were negatively affected, said Bäte.
The alliance downplays: These are isolated cases
Structured Alpha was not the only scandal in 2021. An Australian court sentenced two Allianz companies there to a fine of around one million euros because customers had been cheated on travel insurance. The Bermuda financial regulator fined Allianz Life Bermuda, which mainly operated in Lebanon, for violating money laundering and terrorist financing regulations for €1.4 million.
Does Allianz have a problem with internal controls? Not at all, says CFO Giulio Terzariol. These are a few isolated cases in a very large group. And the Bermuda subsidiary, which has since been dissolved, was very, very small.
Nevertheless, such events can make an investor think twice about whether the Allianz share is still the right paper. CEO Bäte tries to nip such considerations in the bud – with a lot of money.
Despite the burden of structured alpha, he increases the dividend by 12.5 percent to 10.80 euros. Allianz gives a guarantee for the coming years: Not only will it pay out at least 50 percent of the profit, it also promises an annual increase in the dividend of at least five percent. In addition, the group will buy back its own shares for an amount of up to one billion euros this year.
And indeed: The group can afford this generosity towards the shareholders. Because the operating profit reached a record level of 13.4 billion euros. Higher prices, strong sales increases and low burdens from the pandemic ensured this.
After taxes, Allianz shareholders were left with EUR 6.6 billion in profit, just EUR 0.2 billion less than in 2020. It is true: Without Structured Alpha, net profit would have been EUR 2.8 billion more. But even so, the numbers are impressive.
If the course catches up again, Allianz can continue as before. The share price is the measure of all things. The result: the board must try with all its might to avoid major fluctuations and, above all, impacts like the one now caused by the scandal.
The topic of the Olympics also belongs in the category of avoiding scandals. Bäte defended the alliance against critics who had called for an end to the company’s Olympic sponsorship in China due to human rights violations. “We don’t sponsor the host of the Olympic Games, but thousands of athletes,” stressed Bäte. The insurer will continue to support the Olympic movement.
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