AMP flags lower margins, $60m spend in digital bank: shares plummet

Shares in AMP plunge 16 per cent to an all-time low after downgrading margin expectations and unveiling a $60m investment on a new digital bank for small businesses.

Shares in AMP plunged the most in over four years after the financial services firm downgraded margin expectations and said it would spend $60m in a new digital banking service that would help it capture deposits and boost margins in the medium term.

The stock fell as much as 16.7 per cent to an all-time low of 84.5c a share as the company said that in the immediate future, net interest margins – a key measure of bank profitability – would fall to around 1.25 per cent for the 2023 financial year. That would be down from 1.38 per cent last year and below current market expectations.

The share price plunge is its sharpest since July 2019.

The Sydney-based company held an investor day to unveil a $60m investment over the next two years in a digital banking platform for small businesses and sole proprietors. The move, it said, will hopefully help it reduce funding costs by expanding its deposit base.

AMP said the new service would use the so-called “software as a service” or SaaS banking platform of London-based neobank Starling, which alongside Revolut and Monzo, have been successful in building digital-only banks in that country.

The move is designed to capture up to 6 per cent of the $220bn in deposits from sole traders and small businesses for AMP Bank and “lessen funding risks” in the medium term, the company said at an investor briefing. The new service will launch in the first quarter of 2025, AMP said.

“It will reshape the bank portfolio in the medium term to better position AMP for the headwinds the industry is facing when it comes to bank funding,” said AMP chief executive Alexis George.

But analysts highlighted that even when the functionality is technically an off the shelf SaaS by Starling’s Engine banking platform, it will take over 12 months to implement it for AMP.

AMP CEO Alexis George at her home in Sydney. Picture: John Feder/The Australian

Ms George said the company expected continued pressure on NIM as they look into 2024. But over the longer term, AMP expects the new digital bank initiative to have positive impacts on NIM due to the change in funding mix and flexibility it will provide.

Australian banks are facing surging funding costs as interest rates rise and customers seek higher yielding options for their deposits, at the same time as the ultra cheap Term Funding Facility is due to mature by next year.

AMP’s net interest margin - what banks earn above what they pay for funds - new guidance of about 1.25 per cent for FY23 compares with the 1.30 per cent forecasted by analysts polled by Visible Alpha.

“Clearly we’re in a difficult time for banking, and … we are predominantly based on retail deposits because we don’t have large transaction capability. And that’s why we’re sitting here talking about something with Engine and with Starling, because we need to broaden that diversity,” she said.

Ms George added the new digital banking service will be operated as a separate unit within AMP Bank.

The new digital bank will initially launch with core transaction and payment features for both small businesses and consumers. This includes savings accounts, transaction accounts, payments, and cards.

Over time, it will add additional features like term deposits, small overdrafts, and integrate accounting software and other services small businesses need. The goal is to provide a connected digital banking ecosystem on mobile phones.

Lending functionality is expected by the end of 2026 or beginning of 2027, AMP Bank group executive Sean O’Malley said.

Originally published as AMP flags lower margins, $60m spend in digital bank: shares plummet