Teachers in the US state of Arkansas and subway drivers in New York are currently not on good terms with the German group Allianz. Because their pension funds have suffered billions in losses with the special funds of Allianz subsidiary, Allianz Global Investors (AGI). It costs a lot of dollars in an individual’s retirement plan. Other large investors and individuals also lost money. They are claiming a total of six billion dollars from the insurance company in court.
So far, the processes have continued, as has an SEC investigation. The complaints were “false and unfounded,” the alliance said a year ago and announced a “strong defense”. But now the US Department of Justice (DOJ) has dramatically increased the pressure on Munich society. The main US law enforcement agency has announced an investigation into the matter.
It is as if the federal prosecutor said he would take a closer look at a company’s business practices. Red alert for Allianz and its CEO Oliver Bäte.
On Sunday, the company was forced to announce that the process “could have a significant impact on future financial results.” “The alliance is cooperating fully with the SEC and the DOJ in their investigations and immediately launched its own review of the matter,” the statement said. Instead of allegedly false and unfounded complaints, suddenly a separate investigation – 17 months after the stock market crash in question.
Allianz made no provision – with an interesting argument
This is what it is: the subsidiary of Allianz AGI had sold so-called structured alpha funds to the investors concerned in the United States. You need to bring stability to the portfolio, especially in times of significant market turmoil, while delivering good returns. But the sharp swings in the stock markets at the onset of the Corona crisis in early 2020 put alpha funds in distress. AGI even had to completely shut down two of the hedge funds at the end of March. Others suffered heavy losses. The plaintiffs allege that AGI acted in violation of the investment rules of the funds and thus increased the losses.
The Arkansas Teacher Retirement System, the Arkansas Teacher Retirement System, sold its fund shares after the crash, posting losses of $ 774 million. For the pension fund with $ 15 billion under management, that’s five percent of its investments: no paper output.
It is particularly exciting that the Munich-based company has yet to make any provision for possible losses resulting from these lawsuits – although the board of directors of Allianz SE believes they could have “significant effects” on financial results. The group justifies its reluctance with an interesting argument: it is currently not possible to predict the outcome of investigations and legal proceedings. But so are many uncertain economic processes, including many insurance claims. Nevertheless, Allianz gives money back to them.
Apparently CEO Bäte didn’t want Allianz’s stock market history to be ruined, which he actually wanted to repeat next Friday when releasing the half-yearly figures: Whether it’s Covid, floods, climate change or other crises, Allianz generates stable and reliable profits. .
From now on, the alliance leadership will not be able to avoid commenting on the process in the United States. Possible compensation payments and fines in the billions are already having a negative effect on the share price: the newspaper Allianz was temporarily in the red on Monday by more than 7 percent. Investors don’t like such uncertainty. Nord / LB analysts expect Allianz stock to be more volatile in the near future. You have downgraded Allianz shares from “buy” to “hold”.
The Standard & Poor’s rating agency also reacted. The Alliance’s future financial results could be “materially influenced” by the US Department of Justice investigation. This could lead the agency to rethink its vision of earnings and capitalization, writes Standard & Poor’s. Downgrade by a rating agency – and not because of Covid, not because of a daring insurance offer or because of the losses of your own investments. No, due to an offer of structured funds in the United States. It would be really bitter for Allianz.