AMP to cut costs, keep capital ahead of legal verdict

AMP boss Alexis George is looking to cut costs and has tapped the brakes on the company’s capital return plan as it deals with a wounded financial advice arm and several class actions for which it has so far set aside $50 million.

After simplifying the business over the past two years, George on Thursday said reducing costs and improving efficiency remained a key focus for the organisation, as it looked to deliver at least $120 million in cost savings by the 2025 financial year.

AMP chief executive Alexis George said the company would review the pause on the third tranche of its capital return plan by the end of the year.Credit: Oscar Colman

“I’m not going to put any [cost saving] targets into the market that I don’t believe we can deliver on,” she said. “We’ve got a plan in place to make that happen, but there’s investment required of $120 million to $150 million over the next two years as well.”

While AMP’s plans to simplify the firm’s technology, reduce property costs and rein in project spend were broadly welcomed by the market, the company’s announcement that it would pause the third stage of its capital returns program indicated some caution.

Shares in AMP dropped briefly in early trade before closing 4.6 per cent higher at $1.15 a share.

The company is awaiting orders from the Federal Court after it lost a financial-adviser class action in July.

“Given the current uncertainty around the court’s judgment and other litigation matters, we are taking a prudent approach with our capital and liquidity and will pause tranche three of the capital return,” George said. “We will review the decision to pause tranche three by no later than the end of the year.”

The class action, for which AMP has booked a $50 million provision, was brought against AMP by financial advisers who said they were entitled to be awarded damages by AMP over the reduced prices it offered to pay to buy their financial planning businesses.

Wilson Asset Management lead portfolio manager Oscar Oberg said the temporary pause on the third tranche of the capital return program was likely conservatism from the board and that the company’s results were otherwise positive.

“The cost out is well above analyst expectations,” he said. “It’s effectively almost half the profit that’s forecast by analysts in 2025. No doubt analysts will stay on the conservative side with their forecasts given AMPs history but irrespective of that, we should see substantial earnings upgrades.”

“The potential liability from this thing could be quite huge if they were to blow up.”

Shaun Ler, Morningstar analyst

On Thursday, AMP posted net profit of $261 million for the first half, down from $469 million in the same period last year, which included one-off gains from sales of some of its businesses. It also announced a flat dividend of 2.5¢ a share.

Morningstar analyst Shaun Ler said the pausing of the capital return program was understandable and that AMP’s results overall were encouraging.

“It’s not a desirable thing to do, but I can understand why they want to err on the side of caution,” he said. “The potential liability from this thing could be quite huge if they were to blow up. But looking at AMP’s underlying business drivers, I think we will continue to be positive on the company.”

Oberg said George, who joined AMP in 2021, had led a turnaround after the business went through a tumultuous period sparked by the 2018 banking royal commission which exposed deep-seated problems in the wealth management and superannuation industries.

Under George, AMP set about narrowing its focus to key areas including superannuation, financial advice, banking and wealth management, including selling AMP Capital in what Oberg called “a really tough market”.

He said management had also listened to shareholders after almost half the votes at AMP’s annual meeting opposed the company’s remuneration report in March.

“They’ve listened, and they’ve taken out costs quicker. Business is back on track, there’s a growth strategy, and they just have to get rid of all the legacy remediation issues, which we’re getting close to. We’ve got a pretty clean business going forward.”

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