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By Tom Sims and Alexander Hübner
FRANKFURT (Reuters) -Germany's Allianz said on Wednesday it would set aside another 1.9 billion euros ($2 billion) as it braces for the outcome of U.S. regulatory investigations into a multibillion-dollar trading debacle at its funds arm.
The collapse of a $15 billion set of investment funds during the pandemic market turmoil in early 2020 has cast a long shadow over Germany's most valuable financial firm and one of the world's largest asset managers.
The new provision comes on top of 3.7 billion euros the company set aside in February to cover litigation and U.S. regulatory investigations into the funds' demise. It brings the total to 5.6 billion euros.
Allianz said Wednesday's booking hit its first-quarter net profit, which was 600 million euros, less than the 1.9 billion euros analysts had expected.
The collapse of the funds has been under investigation by the U.S. Justice Department and the Securities and Exchange Commission, Allianz has disclosed, as well as the subject of numerous investor lawsuits.
"The fresh charge clearly shows the enormous damage that has been done," said Ingo Speich, head of sustainability and corporate governance at Deka, a top Allianz investor.
Allianz said the additional provision should cover the remaining costs it could incur. The sense of certainty suggests a settlement with the U.S. government could be in the offing.
"This provision booked is a fair estimate of its remaining financial exposure in relation to compensation payments to investors and to payments under any resolution of the governmental proceedings," Allianz said.
Allianz said it was seeking a "timely" resolution to its talks with the DOJ and SEC.
Its shares traded 3% higher in late Frankfurt trade, outperforming a 1% gain in the DAX index of blue-chips stocks.
"Allianz seems to have come a significant step closer to a conclusion on the risk from the...funds," said Steffen Weyl, a fund manager with Union Investment, which is an Allianz shareholder.
Analysts with Jefferies said the provision, coming earlier and smaller than expected, removes "a substantial overhang on the shares".
CEO Oliver Baete has apologised to investors and shareholders for the matter, conceding "not everything was perfect in the fund management".
Baete and other top managers took a cut in last year's bonuses as a result, though Baete earned 9% more in 2021 than a year earlier.
The issue has worried Allianz's top shareholders and harmed its reputation with pension funds that provide a source of business for one of Germany's best known brands.