AMP looks for $120m in cost savings as profit falls

Wealth manager AMP is looking for $120m in cost savings and also hitting pause on returning $350m to shareholders following a fall in its bottom-line interim profit.

Wealth manager AMP is targeting $120m in cost savings and hitting pause on returning $350m to shareholders, as it continues to “right-size” the group following a fall in its bottom-line interim profit.

AMP’s statutory net profit dropped to $261m in the first half, although its underlying result was flat at $112m on the back of improved earnings from AMP Bank and its platforms business, and a reduction in advice losses.

AMP shares jumped 4.5 per cent to $1.15 after the stronger-than-expected underlying profit and cost saving targets.

Chief executive Alexis George said the group has started to see growth in its key banking and platforms businesses.

“The performance of our underlying businesses continues to improve,” she said.

AMP has temporarily paused the $350m third and final tranche of its $1.1bn return of capital to shareholders, deciding to preserve capital given the uncertainty over ongoing legal action.

“We just think it was the prudent thing to do, given we don’t have a lot of clarity around those litigations,” Ms George told analysts on Thursday.

AMP has yet to decide whether to appeal a Federal Court ruling in favour of financial planners who sued over the validity of valuation changes under its Buyer of Last Resort policy in 2019.

It made a $50m provision for the potential liabilities stemming from the case, one of four class actions against AMP.

In a further move to simplify the business, AMP has set a target of $120m in cost savings by the end of 2025, which requires a one-off investment of $120m-$150m over the next two years.

“Reducing costs and improving efficiency remain a key focus for the organisation,” Ms George said, adding the company’s costs this year are on target to be in line with 2022.

AMP has already sold six businesses as it tries to leave behind “an organisation of the past” tainted by a bruising financial services royal commission.

“We have significantly reduced the size and complexity of AMP’s business, whilst continuing to resolve legacy issues,” Ms George said.

AMP has seen a drop in profits. Picture: Steven Saphore/NCA NewsWire

Ms George said AMP is also exploring options for its financial advice business, which posted a reduced loss of $25m in the half, to “accelerate the pathway to profitability”.

“We have to have a viable proposition both for AMP and the advisers, because advice is important for us, it’s important to Australia,” she told The Australian.

“At a $50m loss – if you double it for this year – that’s not viable for neither the advisers nor AMP. So we’re trying to turn it into a viable business that will give us options around how we can go forward.”

AMP has returned $610m in capital to shareholders in the past year, with a further $140m to be returned by late October through an interim dividend of 2.5c per share and a remaining buyback.

“We are committed to an ongoing dividend stream, which is something we had stopped until late last year,” Ms George said.

Citi analysts said there is still “plenty of uncertainty ahead”, although the strong underlying result, BOLR case estimate and “some promise of improved returns moving forward” helped the stock advance.

AMP’s statutory net profit of $261m mainly reflected a $209m net gain on the sale of three businesses, while the previous first half’s $469m bottom-line result was boosted by a $390m gain on the sale of its infrastructure debt platform.

AMP Bank grew its underlying net profit by 23.9 per cent to $57m in an “incredibly competitive” home loan market.

“I don’t see the mortgage competition backing off,” Ms George said. “As markets settle, we may see better funding options.”

AMP’s platforms business lifted underlying net profit by 25.7 per cent to $44m.