AMP implodes as investors flee amid fund outflows

AMP shares imploded yesterday, diving 25 per cent to close at their lowest level since listing 20 years ago.

AMP acting chief executive Mike Wilkins. Picture: James Croucher

AMP shares imploded yesterday, diving 25 per cent to close at their lowest level since listing 20 years ago, as investors fled the company following a complicated exit from its troubled life insurance business.

The falls across the former blue chip stripped $2.3 billion from the market value of the country’s biggest retail superannuation manager as shareholders gave up hope of a dividend windfall.

A long-awaited but complex sale from the troubled life insurance business and fresh warnings about superannuation fund outflows following bad news at the royal commission sent investors fleeing.

AMP outlined a deal to sell its life insurance and mature products books for $3.3bn to the London and Bermuda-based Resolution Capital, as well as plans to float its NZ operations next year. The moves will leave incoming chief executive Francesco De Ferrari to focus on restoring growth to a simplified superannuation, funds management and banking conglomerate.

Acting chief executive Mike Wilkins defended the deal against criticism from analysts that it was the cheapest of a slew of life insurance exits by financial services firms and said there had been no urgency to complete a sale.

“What the deal has done is give him maximum strategic flexibility and optionality, but there was no drive to say we have got to do the deal before Francesco arrives,” Mr Wilkins said.

In a quarterly update, AMP also reported outflows from its wealth management business jumped sixfold — from $243 million to $1.5bn — compared to a year earlier in what the acting chief executive said was continuing fallout from the Hayne royal commission into misconduct in the financial services industry.

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AMP was exposed at the royal commission for charging fees for no service and appearing to mislead the regulator over an independent report to the Australian Securities & Investments Commission.

Chair Catherine Brenner was forced to resign, as was chief executive Craig Meller and three directors

Mr Wilkins said the funds appeared to be flowing to industry super funds, some of which had reported a doubling in monthly inflows since July after they were all but cleared of any of the wrongdoing that has been exposed at retail financial services firms by the royal commission.

But Mr Wilkins said the problem in the business was a lack of inflows, rather than the outflows, and he expected this to continue until the final report of the royal commission.

He said feedback from frontline staff indicated there were concerns among potential customers about the revelations at the commission. “As people are turning up at the door it has been taking longer for that to translate into sales,” Mr Wilkins said.

Australia Post dropped AMP and it faced a number of competitive tenders to retain business from customers.

“There are some funds who in their normal cycle would test the market every five years or so and we have one or two of those,” Mr Wilkins said. “We will compete hard for those and we expect to keep them.”

AMP’s Australian Wealth Management assets under management increased by $579m during the quarter to $132.6bn, thanks to market growth and inflows from the AMP capital business.

AMP capital lifted funds under management by $2bn to $192.4bn after raising funds for property and infrastructure investment.

From a headline price of $3.3bn AMP said it expected to receive a total of $2.2bn, with half in cash and the rest in securities linked to the life business and Resolution that will see AMP effectively financing the buyer.

AMP will take $300m of AMP Life preference shares and $515m of shares in Resolution Life Group Holdings, the Bermuda limited partnership being formed to buy AMP Life and other businesses.

AMP will also take $600m in income linked to its mature products books as annuity as that business runs down under Resolution.

But it will also chew through $1.1bn of the proceeds in refinancing AMP Life, separation costs including replacement capital from moving the AMP-China Life businesses onto AMP’s balance sheet.

AMP Capital would continue to manage $30bn of assets related to the Life business and will become part of the asset management panel for Resolution as it looks to acquire further businesses following a $US2bn capital raising.

Mr Wilkins said AMP would not seek a board seat on the Resolution vehicle.

A separate deal has placed reinsurance cover over 65 per cent of the New Zealand Wealth Protection book, releasing $150m of capital back to AMP.

Analysts at Macquarie said they expected 2018 profit to fall to $461.2m as result of the deals, compared to $848m previously. Reported profit is forecast to recover to $791.2m in 2019.