Allianz's Dresdner sale no exit from banking

By Jonathan Gould - Analysis

FRANKFURT (Reuters) - Investors over the last month have welcomed each new insider leak on Allianz's (ALVG.DE) looming disposal of its loss-making Dresdner Bank but they are fooling themselves if they expect an exit from banking altogether.

That's because Allianz is likely to wind up with a big stake in a new bank created by a merger that it may need to hold for years to ensure control over the sale of its insurance products.

Many observers say even an expected 35-40 percent stake in a new bank is better than the status quo: owning 100 percent of Dresdner which has twice swerved into the red since the insurer bought it for 24 billion euros ($37.6 billion) in 2001.

Shareholders renewed demands that Europe's biggest insurer exit the bank after Dresdner made big subprime-linked writedowns and were pleased when Allianz said it would split Dresdner in two to prepare for banking consolidation in Germany.

While financial shares have been hammered over the last month on renewed fears about more crisis-related hits to earnings, with the DJ Stoxx indexes of European banks .SX7P and insurers .SXIP down around 13 percent, Allianz has eased by less than 4 percent as hopes for a Dresdner sale brightened.

Yet Dresdner is still cited as a major drag on Allianz's shares. According to StarMine, which weights analysts' forecasts according to their track record, Allianz trades at 6.3 times 12 month forward earnings, a discount to French rival AXA (AXAF.PA), which trades at a multiple of 6.6.

Reuters reported last week that Dresdner and Commerzbank (CBKG.DE) were making headway in their due diligence that could lead to concrete merger talks within weeks. ID:nL01528391

The effort is part of an expected broader consolidation of Germany's commercial banks, with Deutsche Postbank (DPBGn.DE) and Citigroup's (C.N) German retail bank also eyeing partners.