The price tag for one of the biggest trading debacles during the pandemic-fueled market meltdown of early 2020 is beginning to emerge.
Allianz SE, facing multiple lawsuits and regulatory probes tied to the collapse that year of its Florida-based hedge funds, took an unprecedented, 3.7 billion-euro ($4.2 billion) charge to cover a settlement reached Friday morning with the vast majority of investors in the funds.
In a sign of more pain to come, the German insurance and financial-services firm, which also owns bond giant Pacific Investment Management Co., warned that ongoing probes by U.S. Securities and Exchange Commission and Department of Justice are at a “sensitive” stage and that it couldn’t yet estimate the final price tag.
“There are still ongoing conversations with remaining plaintiffs,” Chief Financial Officer Giulio Terzariol said in an interview on Bloomberg TV Friday. “We are in conversations with the DOJ, and this conversation is very constructive.”
Investors -- including public pension funds, Blue Cross & Blue Shield and New York’s Metropolitan Transportation Authority -- claimed they lost billions of dollars from the collapse of the hedge funds, which were designed to withstand a market crash yet incurred steep losses during the tumultuous early days of the pandemic. Allianz liquidated two of the vehicles in March 2020 and has been unwinding the others.
The lawsuits accuse Allianz of abandoning a stated investment mandate and downside risk protections of its Structured Alpha Funds, and then doubling down on risky strategies in an attempt to recoup losses during the market volatility -- a move that some plaintiffs derided as an “extraordinarily risky and self-interested gamble.”
In its defense, Allianz told a judge last year that the plaintiffs are sophisticated investors that chose high-risk private funds with open eyes.
Allianz, as a result of the one-time charge, posted a 292 million-euro loss for the fourth-quarter, overshadowing an otherwise strong rebound from the pandemic. The company also announced plans to repurchase as much as 1 billion euros of stock and proposed increasing the annual dividend 12.5% to 10.80 euros a share.
“It’s a step in the right direction,” analysts at Morgan Stanley wrote in a note. “However, management did mention that it expects to incur additional expenses before the matter is finally resolved, which does imply some litigation-related overhang to persist.”
Shares of the insurer fell 1.4% at 11:41 a.m. in Munich, paring gains this year to 5.7%.