frankfurt A state bankruptcy in Russia is becoming more and more likely. Due to the Western blockade of its foreign exchange reserves, the country had to pay for the first time on Wednesday two foreign currency bonds in rubles instead of dollars. The Allianz Group could also be affected by the worsening of the situation. Private bank Berenberg expects the insurer to face writedowns of €300m on investments in Russia.
The portfolio of Russian bonds and other financial products is small compared to Allianz’s total investments. According to a Berenberg analysis from early March, the holding was just 0.25 percent of the investment portfolio.
However, potential write-downs hit the insurer at an inopportune time. It was only in February that Allianz had to announce high provisions for legal disputes resulting from hedge fund losses during the first days of the corona crisis in the US. They boosted the 2021 annual result by €2.8 billion. Other loads are possible.
Natural catastrophes have a negative impact in the first quarter
Russia’s war of aggression in Ukraine is by no means the only challenge Allianz faces this year. Losses from natural catastrophes in Europe and Australia could affect earnings from January to March 2022 more than usual in a first quarter.
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Rising interest rates could also have a negative impact on existing investments, especially those of the Pimco subsidiary, as the asset manager relies heavily on bonds. Overall, however, Berenberg analyst Michael Huttner expects a neutral effect, as the group will also have better options to reinvest funds. Allianz’s annual report states that an interest rate increase of 100 basis points would not have a significant effect on the expected operating result in the first year after the interest rate change.
Despite the current challenges, Huttner maintains his buy recommendation on Allianz shares. The financial professional finds the combination of favorable valuations and increased dividend payouts to shareholders to be particularly attractive. The dividend is expected to increase this spring by 13 percent to EUR 10.80 per share. In addition, the group recently announced a new share buyback program.
Plus: Russia pays dollar bonds in rubles for the first time