German-headquartered Allianz SE could face a loss of around €3.5bn with the potential for a worst-case hit of €6.8bn, in light of ongoing investigation by the US Department of Justice (DOJ) into the Structured Alpha Funds of Allianz Global Investors, according to an analyst note by Berenberg.
The DOJ probe follows a 2020 investigation by the US Securities and Exchange Commission (SEC) into the Structured Alpha Funds over claims of not safeguarding against pandemic-induced financial volatility.
Berenberg said it expected the DOJ investigation to conclude quickly and also stated that it had confidence the group will focus on turning around the negative situation quickly.
While €3.5bn would clearly impact Allianz’s cash and solvency, it would be manageable."
But a €3.5bn base-case loss to be a reasonable outcome from the investigation, consisting of $1.1bn for a possible DoJ fine and $3bn for the claims from the fundholders, on the basis that a settlement is likely.
Berenberg highlighted that the $1.1bn estimate for the DoJ fine is equivalent to just over 4% of the total funds under investigation, which was $25bn at the peak.
"While €3.5bn would clearly impact Allianz's cash and solvency, it would be manageable as we believe that it would be earned back in well under a year," it said.
However, a far more serious loss scenario pointed to around €6.8bn, consisting of payment in full for the $6bn claims from the US fund holders and a DoJ settlement equivalent to one third of this, or $2bn.
Berenberg said this outcome would be equivalent to ten months of remitted cash flow, or 16ppt in terms of Solvency II ratio.