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FINANCE

Dresdner drags down Allianz results

The German insurance giant Allianz on Thursday posted a worse-than-expected 2008 loss owing in large part to a huge charge in connection with the sale of its Dresdner Bank subsidiary.

Dresdner drags down Allianz results
Photo: DPA

Allianz said its net loss amounted to €2.44 billion ($3.1 billion), while analysts polled by Dow Jones Newswires had pencilled in a more modest drop of €1.86 billion.

In 2007, Allianz had made a net profit of €7.97 billion. The insurance group booked a charge of €6.4 billion in connection with the sale of Dresdner to the second biggest German bank, Commerzbank. That sale was completed on January 12 2009, “more than half a year earlier than originally intended,” the insurer noted in a statement.

Allianz shares leapt by 9.36 percent to €53.75 in early trading on the Frankfurt stock exchange, while the DAX index of leading shares was 1.48 percent higher overall. On the operating level, Allianz made a profit of €7.43 billion, but that was 25 percent below the year earlier figure, and slightly lower than an analyst forecast of €7.50 billion.

The management board would propose a dividend of €3.50 per share for 2008, the statement said, down from €5.50 in 2007.

“Our result of €7.4 billion deserves recognition considering the challenging environment,” it quoted Allianz chairman Michael Diekmann as saying.

Combined revenues last year fell by 5.3 percent to €92.5 billion, the statement said, while net income from continued business, excluding Dresdner, dropped to €4.0 billion from 7.3 billion in 2007.

“The difficult conditions in the capital markets will continue throughout 2009. We are in the midst of the toughest economic downturn for decades,” Diekmann said. “Reliable profit forecasts for 2009 are not possible in this environment.”

In the final quarter of 2008, a period marked by volatile financial markets following the bankruptcy of US investment bank Lehman Brothers, Allianz showed a net loss of €3.11 billion, compared with a profit of€ 665 million in the same period a year earlier.

In Allianz’s core activity of property and casualty insurance, the group reported a slight increase in premium income to €43.2 billion, along with an operating profit of €5.6 billion, which represented a decline of around 10 percent from 2007.

Getting rid of Dresdner was a top priority for Allianz last year. The insurance group ended up selling its loss-making bank for a total of €5.124 billion, well below the original price tag of €9.792 billion.

ECONOMY

German consumer prices set to rise steeply amid war in Ukraine

Russia's war in Ukraine is slowing down the economy and accelerating inflation in Germany, the Ifo Institute has claimed.

German consumer prices set to rise steeply amid war in Ukraine

According to the Munich-based economics institute, inflation is expected to rise from 5.1 to 6.1 percent in March. This would be the steepest rise in consumer prices since 1982.

Over the past few months, consumers in Germany have already had to battle with huge hikes in energy costs, fuel prices and increases in the price of other everyday commodities.

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With Russia and Ukraine representing major suppliers of wheat and grain, further price rises in the food market are also expected, putting an additional strain on tight incomes. 

At the same time, the ongoing conflict is set to put a dampener on the country’s annual growth forecasts. 

“We only expect growth of between 2.2 and 3.1 percent this year,” Ifo’s head of economic research Timo Wollmershäuser said on Wednesday. 

Due to the increase in the cost of living, consumers in Germany could lose around €6 billion in purchasing power by the end of March alone.

With public life in Germany returning to normal and manufacturers’ order books filling up, a significant rebound in the economy was expected this year. 

But the war “is dampening the economy through significantly higher commodity prices, sanctions, increasing supply bottlenecks for raw materials and intermediate products as well as increased economic uncertainty”, Wollmershäuser said.

Because of the current uncertainly, the Ifo Institute calculated two separate forecasts for the upcoming year.

In the optimistic scenario, the price of oil falls gradually from the current €101 per barrel to €82 by the end of the year, and the price of natural gas falls in parallel.

In the pessimistic scenario, the oil price rises to €140 per barrel by May and only then falls to €122 by the end of the year.

Energy costs have a particularly strong impact on private consumer spending.

They could rise between 3.7 and 5 percent, depending on the developments in Ukraine, sanctions on Russia and the German government’s ability to source its energy. 

On Wednesday, German media reported that the government was in the process of thrashing out an additional set of measures designed to support consumers with their rising energy costs.

The hotly debated measures are expected to be finalised on Wednesday evening and could include increased subsidies, a mobility allowance, a fuel rebate and a child bonus for families. 

READ ALSO: KEY POINTS: Germany’s proposals for future energy price relief

In one piece of positive news, the number of unemployed people in Germany should fall to below 2.3 million, according to the Ifo Institute.

However, short-time work, known as Kurzarbeit in German, is likely to increase significantly in the pessimistic scenario.

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