AMP flags half-year profit of up to $150m amid virus uncertainty

Any hope of a bumper special dividend for AMP shareholders is dwindling, as the group warns of a more than 50pc drop in half year profits.

AMP is expecting a sharp drop in its half-year profit. Picture: Hollie Adams

The prospect of windfall returns for AMP shareholders has diminished, as the group warned of a more than 50 per cent collapse in first half profits alongside further pressure on its wealth management arm due to heavy outflows.

The Morrison government’s early access super scheme has served a blow to the already under pressure wealth manager, with almost $1bn of outflows from customers looking to dip into their retirement savings in the past six months.

In an earnings update AMP said its wealth management arm, once the major source of profit for the company, had trebled its outflows over the past two years to $4.4bn in the first half alone.

The previously-flagged loss of corporate mandates, including Australia Post, accounted for $1.3bn of withdrawals, along with $900m associated with the early access to super scheme for those affected by the COVID-19 pandemic.

Average assets under management had fallen by 6 per cent to $126bn, AMP said as the wealth manager was hit by market volatility.

The update, released ahead of the group’s first half results announcement in two weeks, also included a $25m writedown in its banking arm, due to credit losses from the pandemic, in line with similar moves by the major banks.

AMP said it expected to report underlying profit of between $140m to $150m for the first half, a drop of more than half from its $309m profit at the same time last year.

The updated figures, subject to audit review, triggered a 12.8 per cent share slide to $1.46 on Friday, the stock’s biggest drop in four months, wiping $740m off its market capitalisation.

Investors had been hoping for the resumption of dividends after the $2.5bn sale of AMP Life to Resolution Life passed the final hurdle in June.

AMP was coy on the proceeds of the sale, saying only that it had “successfully completed the complex sale” and would update the market on its capital management strategy come the release of its first half results on August 13.

“The hope for investors lies in the cost reduction program which has been delayed, as well as any future capital return,” Shaw and Partners senior banking analyst Brett Le Mesurier said.

In its update, AMP said it had “prioritised servicing clients” over the period, temporarily increasing resources and consequently costs although it remained committed to delivering $300m of annual cost savings.

AMP Chief Executive Francesco De Ferrari at the Sydney offices. Picture: John Feder/The Australian.

Meanwhile, AMP said provisions from bad loans related to the coronavirus pandemic were set to hit its banking arm by $25m, pulling earnings for that unit down to $50m, even as its loan book grew 3.5 per cent to $20.9bn over the first half.

At AMP Capital, assets under management had fallen 2 per cent to $198bn, with performance and transaction fees slated to drop by 40 per cent compared to the same time last year “due to market impacts”.

“AMP Capital has recently been the hope within AMP, but even that was damaged in Friday’s warning,” Mr Le Mesurier noted.

“The drop in operating earnings is particularly disturbing considering the first half usually delivers higher operating performance, and the recent promotion of Boe Pahari to lead the unit raises further questions given the negative market reaction.”

It comes as the unit faces an exodus of management, most markedly its property chief Carmel Hourigan, who last week left the group to head Charter Hall’s office unit.

AMP hinted at a new strategy to come for the capital arm, also to be unveiled at its interim results.

“The pandemic has presented many challenges but has not distracted us from our mission to transform AMP into a simpler, client-led, growth orientated business,” chief Francesco De Ferrari said in a statement.

“In the first half, we have made significant progress in delivering our strategy including completing the highly complex sale of AMP Life which simplifies our portfolio and sets us up well for the future.”

In a rough week for the financial services giant, AMP said it would also defend a class action filed against its financial planning arm over the sale of life and insurance products, the second class action brought against it in the past week.

AMP said on Thursday proceedings in the Federal Court against AMP and Hillross Financial Services “relate to advice provided by some aligned financial advisers in respect of certain life and other insurance products”.

Earlier this week, AMP says it would defend a class-action lawsuit brought against it by its own financial advisers over its controversial decision to slash the amount it would pay them for their businesses.