Allianz, Munich Re Near Agreement on Bank Takeover, Share Swap

The German banking and insurance sector, like a volcano that has long been threatening to erupt, may finally explode this weekend. Two of the world’s largest insurance groups, Allianz AG and Munich Re are reportedly in the final stages of negotiations which would significantly restructure both groups.

Allianz is set to acquire Dresdner Bank, Germany’s third largest. It already owns 21.4 percent and would acquire the 6.4 percent share held by Munich Re. In exchange Allianz would cede its 17.4 percent share in HypoVereinsbank, ranked number two in Germany behind Deutsche Bank, to Munich Re. The transaction, which would be consolidated into holding companies, would create two of the world’s largest financial service enterprises.

Allianz and Munich Re have already announced plans to unwind their cross shareholdings – each owns around 25 percent of the other – which will free up additional capital for investment and expansion.

Allianz-Dresdner would have a market value of €100 billion ($89.32 billion), roughly the same as AIG’s, would become the world’s third largest asset manager with over $800 billion in assets under management, and would have a customer base reaching half the households in Germany alone.

Munich Re-HypoVereinsbank would have a lesser impact, but would give Munich Re much greater freedom to increase the sales of its financial and primary insurance products to consumers through its 17,500 tied agents and HVB’s extensive branch network. These sectors already account for over half its annual income.

Unlike last year’s disastrous merger plan between Dresdner and Deutsche Bank, Allianz has indicated that it would retain Dresdner’s investment banking operations Kleinwort Wasserstein. Its ultimate goal is to create a company along the lines of Citigroup, offering a full range of banking, insurance and financial management products to customers ranging from modest households, the “mass affluent” to global corporations. If the deal goes through, that’s the likely result.