AMP revives life sale, to raise $650m and posts $2.3bn net loss

AMP flags a radical revamp as it posts a $2.3bn loss, revives the sale of its life business and launches a $650m raising.

AMP chief executive Francesco De Ferrari. Picture: John Feder

Under-fire wealth group AMP has resurrected the sale of its life insurance business at a lower $3 billion price, and kicked off a $650 million heavily-discounted capital raising to shore up its balance sheet.

AMP’s transformation plans come as it delivered a $2.3 billion net loss for the six months ended June 30, according to documents lodged with the ASX. That compares to a $115 million interim profit last year.

AMP said underlying profit for the first half printed at $309 million. Operating earnings tumbled 31 per cent as four of its five business units had lower results, bar real assets and infrastructure arm AMP Capital.

The sale of AMP’s life insurance business to Resolution Life – which has operations spanning Bermuda, London and the US - was initially agreed at $3.3 billion, but last month capital requirements in New Zealand stymied that deal.

The capital raising will be conducted via a bookbuild with a floor price of $1.50 per share, or a 13.3 per cent discount to where the stock closed on Wednesday. It is a placement to institutional investors and a share placement plan.

AMP’s shares are in a trading halt while the capital raising is being undertaken.

AMP, led by Francesco De Ferrari, also outlined a $1 billion to $1.3 billion transformation plan to invest in growth, reduce costs and tackle legacy issues.

“We are taking bold but necessary action,” Mr De Ferrari told journalists. “The transformation will not happen overnight.”

His transformation plan includes a radical reshaping of AMP’s financial planning business, which drastically reduces the rate AMP will pay for practices as the buyer of last resort. That falls from four times recurring revenue to 2.5 times.

Mr De Ferrari said his experience in other markets of significant industry disruption such as that stemming from the Hayne royal commission suggested up to one third of its 2400 advisers may leave AMP as part of his transformation.

Despite the shake-up and the risk his strategy will anger shareholders who urged AMP not to recut a lower-price deal with Resolution, Mr De Ferrari is confident he can salvage the company.

Read more: AMP advisers looking for a plan | AMP mulling $2bn bank sale

“It is absolutely salvageable, I think AMP has a fantastic brand,” he said.

Citigroup’s equity sales desk told clients AMP was announcing a “big shake up” but said the strategy change, capital raising and revised life insurance deal would lead analysts to further cut their future earnings estimates

Their note also said AMP’s expectations around the new life insurance deal and its timetable looked “a bit too good to be true”.

Macquarie Group analyst Brendan Carrig said: “In our view, at current levels the investment thesis is dependent upon the completion of the sale of AMP Life.”

His note to clients was titled “Everything but the kitchen sink?”

The ASX statement also revealed the departure of AMP finance chief designate John Patrick Moorhead.

AMP’s headline earnings result was hit by a non-cash impairment of $2.35 billion after tax as it wrote down goodwill in its wealth management, life insurance, capitalised project costs and valuations of advice registers.

The impairment has a capital impact of about $139 million after tax.

“2019 is a year of transition for AMP as we fundamentally reset and de-risk the business,” Mr De Ferrari said in a statement.

“The first half 2019 result reflects the challenges we’ve faced and our actions to address them including taking a predominantly non-cash impairment.

“The impairment doesn’t materially impact AMP’s financial stability and shouldn’t overshadow a resilient underlying performance, particularly from AMP Capital and AMP Bank, during the half.”

Mr De Ferrari said the result in the life insurance unit showed “ongoing and structural volatility” in that industry, including reforms such as the “protecting your super” legislation.

AMP’s level three eligible capital above minimum regulatory requirements came in at $1.7 billion as at June 30, up from A$1.65 billion at December 31 2018.

AMP’s Australian wealth management division reported operating earnings of $103 million, almost half the amount delivered in the first-half in 2018. The unit endured large net cash outflows of $3.1 billion in the period, which included $1.2 billion in pension payments to customers in retirement.

The AMP board said it would adjust Mr De Ferrari’s remuneration package “to ensure he is appropriately incentivised and aligned with shareholders” during the transformation of AMP.

As previously flagged when the initial $3.3 billion life insurance transaction fell over, AMP is not paying an interim dividend.