AMP ‘governance failures’ put additional pressure on credit rating: Moody’s

Moody’s has taken a swipe at AMP, arguing its cashflows could continue to fall in the wake of its “governance failures”.

AMP executive chairman Mike Wilkinss. (Britta Campion/The Australian)

Global ratings agency Moody’s has taken a swipe at beleaguered wealth manager AMP, arguing its cashflows could continue to fall in the wake of its “governance failures”.

Moody’s senior credit officer Frank Mirenzi said the revelations in the royal commission about AMP (AMP) vindicated the agency’s negative stance on the company’s credit rating.

AMP’s life insurance division has a Aa2 credit rating, according to Moody’s, which said the scandals drubbing the company’s reputation were creating additional pressures on its credit rating.

“While it is still too early to predict the potential outcomes from the allegations against AMP raised by the commission, AMP’s governance failures are credit negative for the company and are appropriately reflected by our negative outlook on its rating,” Mr Mirenzi said.

“AMP’s credit profile is under pressure, despite its strong capitalisation and market position, because of the potential for reputational damage and additional legal and compliance costs associated with the allegations of governance failures,” he said.

AMP shares tumbled to a six-year low on Friday after last week’s overwhelming shareholder vote against its remuneration report and the likelihood of further brand damage from the fees-for-no-advice scandal.

On Monday, AMP shares rose 3 per cent to $3.84 in early trade. The stock is about 30 per cent below its recent peak before the royal commission.

Macquarie analysts reckon the wealth management division could suffer $35 billion in outflows over the next five years, representing 27 per cent of its assets under management. The division’s margins could drop from 1 per cent to 81 basis points in 2023.

While AMP revealed a slight drop in assets under management in its Australian division in last week’s quarterly update, Moody’s said the worst could still be to come.

Moody’s said the potential for reputational damage to impact net investment cash flow to the group will likely prove more prevalent during the second quarter, given the timing of the testimony and disclosures at the royal commission into banking and financial services.

“To this extent there is the possibility that second quarter investment cash flow could prove weaker than the first quarter results, and weaker than the prior corresponding period,” Moody’s said.

The AMP board imploded in the lead-up to last Thursday’s annual meeting. Chair Catherine Brenner resigned, chief executive Craig Meller was dismissed, and two directors Holly Kramer and Vanessa Wallace resigned ahead of certain defeat in their re-election polls.

The company’s longest-serving director, Patty Akopiantz, will step down before the end of the year.

Executive chairman Mike Wilkins will hand over to David Murray before July 1 and resume as a non-executive director.

AMP last week suffered the humiliation of an overwhelming shareholder vote against its remuneration report, as the embattled wealth manager warned of further customer remediation costs and higher expenses to modernise its systems in response to the rolling fees-for-no-service crisis.

At 11am (AEST) AMP shares were 12.5 cents, or 3.35 per cent, higher at $3.855.