(Reuters) – Germany’s Alliance said on Wednesday it would set aside an additional 1.9 billion euros ($ 2 billion) in support of the results of US regulatory investigations into a multi-billion dollar trade debacle at its fund arm.
The collapse of a $ 15 billion set of investment funds during the pandemic market turmoil in early 2020 has cast a long shadow over Germany’s most valuable financial companies and one of the world’s largest asset managers.
The new provision will be in addition to EUR 3.7 billion set aside by the company in February to cover litigation and US regulatory investigations into the fund’s demise. That gives a total of 5.6 billion euros.
Allianz said Wednesday̵7;s booking reached its first-quarter net profit of 600 million euros, less than analysts’s of 1.9 billion euros had expected.
The collapse of the funds has been investigated by the US Department of Justice and the Securities and Exchange Commission, Allianz has revealed, as well as the subject of several investor processes.
“The new accusation clearly shows the enormous damage that has been done,” said Ingo Speich, head of sustainability and corporate governance at Deka, a top investor from Allianz.
Allianz said the extra provision should cover the remaining costs it may incur. The feeling of security indicates that a settlement with the US government may be on the way.
“This provision booked is a fair estimate of its remaining financial exposure in relation to compensation payments to investors and to payments under any settlement of government procedures,” Allianz said.
Allianz said it was seeking a “timely” solution to its talks with the DOJ and the SEC.
Its shares traded 3% higher in late Frankfurt trading, surpassing a 1% increase in the DAX index for blue-chip stocks.
“Allianz seems to have come a significant step closer to a conclusion about the risk from … the funds,” says Steffen Weyl, fund manager at Union Investment, which is a shareholder in Allianz.
Analysts with Jefferies said the sale, which comes earlier and less than expected, removes “a significant overhang on the shares.”
CEO Oliver Baete has apologized to investors and shareholders for the matter and admitted that “not everything was perfect in the fund management.”
Baete and other top executives reduced last year’s bonuses as a result, although Baete earned 9% more in 2021 than a year earlier.
The issue has worried Allianz’s largest shareholders and damaged its reputation with pension funds, which are a source of business for one of Germany’s most well-known brands.
The issue revolves around Allianz funds that used complex option strategies to generate returns but made large losses when the spread of covid-19 triggered wild stock market fluctuations in February and March 2020.
For Allianz, which has EUR 2.6 trillion in assets under management, the issue has already reduced earnings. The profit in 2021 was the lowest since 2013.
Investors in the so-called Structured Alpha set of funds have demanded about $ 6 billion in damages from the losses in cases filed in the United States.
The set of funds was specifically aimed at normally conservative US pension funds, from those for workers in Alaska to teachers in Arkansas to subway workers in New York.
The Arkansas Teacher Retirement System was the first of at least two dozen lawsuits filed against Allianz in the aftermath of the collapse.
The Arkansas Pension Fund, which had $ 1.6 billion in three Structured Alpha funds at the end of 2019, said in its July 2020 lawsuit that it had lost at least $ 774 million due to “negligent mismanagement” of the funds.
It secured a $ 642 million deal, according to minutes from a board meeting.