The puppeteer gets in a tangle

Insurer Allianz has a headache in the wake of the scrapped merger between Deutsche Bank and Dresdner Bank. The deal, which Allianz did much to engineer, would have given the Munich group the dream solution to its strategic problems in its home market. It still has plenty of strings to pull in the inevitable round of banking M&A moves to come. Allianz harbours a secret wish to resurrect the deal but is more likely to get an inferior version: Dresdner-Commerzbank.

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Meetings of the Munich financial press club are normally sleepy affairs, involving a handful of local journalists meeting local businessmen. But on April 11, this parochial forum has become an international media inquisition. Around 70 reporters and editors cram into a long, narrow room at Munich's City Hilton hotel to grill one of the key protagonists in the abandoned Deutsche-Dresdner merger.
Paul Achleitner, the 43-year-old Austrian who became finance director of Allianz in January, sits on the end of a panel of Allianz representatives and tries to exude relaxed affability. Two of his fellow board members give worthy speeches on the evening's ostensible topics for debate: pensions, asset management and equity culture in Germany. While impatience grows among the press corps, Gerhard Rupprecht, head of the Allianz life insurance business, drones on about demographics. Achleitner then gives his own speech, on Allianz's conversion to shareholder-value. He ends it with an ironic twist: "Now I'm intrigued to see whether we will manage to discuss old-age provision for 30 minutes."
No such luck. The German press, uncomprehending about the shambolic failure of the attempted bank merger, are out for blood. Is this a personal disaster for Achleitner, whose quest to shake off Allianz's underperforming equity holdings included offering its 22% stake in Dresdner Bank to Deutsche Bank? Not at all, he replies: the strategic concept behind the Deutsche-Dresdner deal was fine, the breakdown in talks between the two banks was due to human factors beyond his control.
Allianz's role was confined to the future of Deutsche and Dresdner's retail operations, says Achleitner: Allianz was interested in creating a consolidated distribution network through which it could sell services including fund management. The problems with the merger arose on the wholesale side: specifically, Deutsche's resistance and Dresdner insistence on integrating the two sides' investment-banking operations.

The press corps is having none of it. Achleitner was until recently a high-flying investment banker, head of Goldman Sachs' business in Germany: he of all people should have foreseen the issue. And since the wholesale schism brought down the retail accord, the former was, whatever Achleitner might now say, Allianz's concern.
Joachim Faber, head of asset management at Allianz, jumps to his colleague's defence: "Allianz can't sit at the table [with the bosses of Deutsche and Dresdner] 24 hours a day and hold their hands."
Discussions with everyone
Questioning turns to what Allianz will do with its large holding in Dresdner Bank. Is it true Allianz has had expressions of interest from major international banks? Achleitner tells of discussions of the sort "that everyone holds with everyone," but he is aware of no concrete offer for Dresdner. He also explains that although talks are still being held on retail cooperation between Allianz and Deutsche Bank, the chances of an alliance between the insurer and Deutsche's mutual-fund company DWS are "extremely low".
The beleaguered finance director insists that while losing the Deutsche-Dresdner tie-up is a disappointment for Allianz, "happily we live in an environment rich in options." What the other options are remains vague, but none can possibly be as good as putting together the two famous old banks.
The Munich insurer needed this particular merger badly. To understand why, you have to attend more closely to the parts of the Hilton press conference that no one listened to: those worthy speeches about asset management.
An emerging market
Germany has long been a sleepy market for retail financial services. In 1998, a relatively high 39% of household financial assets were in the form of bank deposits. That compares to 18% in the US and 19% in the UK. With much of the remainder of their savings Germans bought staid products such as with-profits insurance policies that were more about protecting the value of their assets than growing them.







Paul Achleitner

But Germans have recently noticed, in a big way, that there are more exciting things to do with their money. Faber observes that the stock market has suddenly joined traditional obsessions with cars and soccer as the staple of conversation in Germany's pubs.
Claire Gouzouli, director of First Consulting and an authority on financial services in Germany, says that Allianz's conservative image leaves it inadequately positioned to cope with this changing retail culture. "Germany is an emerging market for financial services, but countries that have slept for long enough often perform a leapfrog. Germans have gone from bank deposits to far-eastern equity funds. Allianz is afraid of being leapfrogged out."
The insurer's traditional businesses, like insuring property and life, have mediocre growth prospects. The two financial products that are taking off in Germany are equities and mutual funds. Allianz knows it has to expand on its slender 2% market share in German fund management if the country's conversion to equity culture is not to pass it by.
In its attempt to become a mutual-fund power, Allianz faces two awkward problems: its brand, and its distribution system. Germans view insurers as people who do conservative things with your money. For their increasingly equity-oriented savings habits, they prefer well-known fund managers like DWS or Dresdner Bank's Deutscher Investment-Trust (dit). Anglo-Saxon fund managers like Fidelity, Pioneer, Barings, Flemings, Templeton and Mercury have also attracted many German clients: mutual funds are arguably foreigners' best retail-finance business in Germany.
Faber tells Euromoney that Allianz has no image problem. Market research shows that Germans know the Munich group is more than just an insurer. But Allianz's thwarted desire to get its hands on the powerful DWS suggests it thinks its fund management franchise needs beefing up.
Worse, Allianz sells its products in the wrong places to tap the growth of mutual funds. It has limited and non-exclusive bancassurance relationships, including ones with Dresdner Bank, HypoVereinsbank and Bavaria's cooperative Volksbanken. But it predominantly relies on self-employed agents.
These intermediaries can be found in any typical small German town. They are often family businesses, led by a member who knows the town's inhabitants by their first names and is trusted by clients who go to them for unsophisticated products like household insurance. Some sell a small number of competing insurers' policies, but most bother only to distribute products made in Munich by Allianz.
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