It’s an axiom of investing that selling is half the game. Figuring out what to buy and when is critical, of course, but knowing when to sell can be equally important — and often more fraught. This is a lesson that many institutions, having expanded wildly by acquisition during the bull market, may have to learn the hard way as the credit crisis gives way to a great deleveraging.
Consider Michael Diekmann. In five years at the helm of Germany’s Allianz, the CEO has transformed the company’s core insurance business, Europe’s largest, by restoring discipline to its underwriting practices, consolidating back offices and moving to a single brand in most of the 70 countries in which the group operates. But as Senior Editor Jo Wrighton reports in this month’s cover story, “Banking on Insurance,” beginning on page 34, Allianz continues to trade at a substantial discount to peers like France’s AXA because of the poor performance of its Dresdner Bank subsidiary.
Allianz spent a bundle to acquire Dresdner back in 2001, a time when Citi-group was flying high, fi-nan--cial supermarkets were all the rage, and the still-new euro was fueling an M&A boom in Europe. The deal never lived up to expectations, though. Dresdner suffered from weak profitability because of Germany’s fragmented banking market and a lack of scale in its investment banking arm, Dresdner Kleinwort. The credit crisis has exposed the depth of the problems. Dresdner fell into the red in the first quarter after taking €845 million ($1.3 billion) in subprime write-downs and may have to take billions in off-balance-sheet credit positions onto its books.
Pressed by some of his shareholders, Diekmann is actively searching for solutions. Executives would like to merge Dresdner’s retail banking business with that of a rival — say Deutsche Postbank — to gain clout. Meanwhile, the investment bank may soon be sporting a For Sale sign. Neither transaction would be easy to pull off, however. Selling the investment bank, for example, looks particularly challenging at a time when most potential buyers are themselves retrenching. If Diekmann can successfully extricate Allianz from its banking misadventure, it would be at least as impressive an achievement as anything he has done with the group’s insurance business.
Western financial institutions may be struggling, but in many parts of the world growth is still the name of the game. That’s certainly the case in Russia, where the benefits of record oil prices are driving the country’s consumer boom to new heights. In “The Empire Builders,” starting on page 82, Contributor Craig Mellow looks at the growth strategies of eight Russian business leaders who rank as the best in their sectors in our annual survey of analysts and investors. Sergey Bachin, chief executive of residential developer Open Investments, is blazing a trail in the country’s property sector. He plans to spend as much as $3 billion to develop a suburban community for 5,000 families on the distant outskirts of Moscow. As Mellow writes, although many outside observers worry about the rise of state power in Russia, executives like Bachin are steadily remaking the country, one tract house at a time.
