AMP shares tank after it reveals toll taken by banking royal commission

AMP shares dived over 5pc to a record low after it set aside $290m for potential remediation and flagged a dividend cut.

AMP’s reputation took a hammering in the banking royal commission hearings. Pic: Hollie Adams

AMP shares have tumbled more than 5 per cent to a record low after it was forced to put aside close to $300 million for potential remediation for poor financial advice stretching back a decade, as it unveiled fee cuts for superannuation customers and a $35m overhaul of its risk management.

The beleaguered wealth manager today said it will take a $290 million charge to compensate customers after failing to provide advice they had already paid for. It also said its profit for the first half of the year would feel the impact of $55m for costs incurred during the banking royal commission, its strategic reviews and the costs of remediating customers.

Long-suffering shareholders can also expect to have a skinnier dividend, with AMP warning its interim payout will likely fall below its normal payout rate of 70 to 90 per cent of profits.

AMP (AMP) shares swooned more than 5 per cent to close at a record low of $3.30.

Ahead of its results announcement, the bank said it was taking actions to reset the business and strengthen its management.

The Australian Securities and Investments Commission is forcing the wealth industry to “look back” over the last decade and review its financial advice and fees charged. AMP said this potential remediation applied to its aligned adviser network and was “one of the first” instances of the audit programs. “Discussions with ASIC remain ongoing in relation to the detailed scope and methodology,” AMP said.

The company, which had its reputation shredded by the royal commission after it was revealed AMP had misled the regulator on a number of occasions over charging fees to customers where no service was given, said the ASIC “look back” program was expected to cost $50m per year over the next three years.

While AMP’s market value has tanked by about $5 billion since March this year, as the group’s stock fell about 30 per cent, there has been no insight into how the royal commission revelations had affected the business until today’s announcement.

AMP said it expected to deliver a first half underlying profit of between $490m and $500m, in which it said there was a “recent deterioration in experience and one-off capitalised losses in Australian wealth protection”, which is the company’s life insurance division. AMP said it was reigniting the process for a potential sale of the life insurance division, following years of problematic performance.

“Customer needs are our immediate priority as we firmly believe this will also best serve the long-term interests of shareholders,” acting chief executive Mike Wilkins said in a statement. “We know it will take time to earn back trust.”

“To retain capital and strategic flexibility over the coming period, it is expected that the interim dividend may be outside this range,” AMP cautioned.

AMP acting CEO Mike Wilkins at the company’s AGM in Melbourne. Pic: Aaron Francis

AMP said it would also be lowering fees charged to its 700,000 customers in MySuper products, which are legally required to be low-fee simple super products. It said pricing reductions would be implemented in the third quarter, and was expected to result in a $50m hit to its wealth management revenue.

This week Westpac’s wholly-owned BT Financial Group slashed fees charged to super customers on its investment platforms, likely triggering a wave of fee cuts at rival customers. The sector is also under pressure to end the rorting of super customers, with the Productivity Commission’s inquiry into the $2.6 trillion super sector likely to drive fees lower across the sector.

However, the problems are continuing to mount for AMP. The corporate watchdog has revealed it is working with the Director of Public Prosecutions after the financial scandal at AMP sparked by the royal commission.

The royal commission into banking and financial services has focused on the role trailing commissions have played in poor consumer outcomes, and the industry is now moving to remove them.

Legacy products account for about a third of AMP wealth management’s total assets under management, but generate 54 per cent of the division’s revenue, as many products still generate grandfathered trailing commission, according to UBS analysis.

AMP also derives an inordinate amount of fee revenue from superannuation members with ultra-low balances of less than $6000 in savings, which is now under threat from the government’s crackdown on gouging in super funds.

AMP receives a large amount of default super, where the savings of the least engaged savers, who fail to nominate their own fund, is managed. The company is listed in 15 modern employment awards, and is one of the top 10 funds in the default system when measured by the number of award listings.

At the banking royal commission, senior counsel assisting Rowena Orr QC had asked commissioner Kenneth Hayne to decide if criminal breaches of the law were committed by AMP as it misled ASIC.

AMP head of financial advice Jack Regan admitted to the royal commission that the company had misled ASIC no fewer than 20 times over the fee-for-no-service scandal. Evidence before the commission also suggested AMP executives put heavy pressure on Clayton Utz, which was compiling an independent report on AMP’s wrongdoing, to downplay the role in the debacle of former advice boss Rob Caprioli and to remove Mr Meller’s name from the final document.

It heard Clayton Utz gave AMP 25 drafts of the report, removing Mr Meller’s name so that it would not “attract unnecessary attention to him by ASIC” before inserting a paragraph that exonerated him.