AMP still a waiting game for shareholders

AMP Francesco De Ferrari. Picture: Britta Campion

When Francesco De Ferrari hands down AMP’s results next month, all eyes will be on how much cash will be returned to shareholders to compensate for the sale of its 170-year-old life insurance business.

The sale to Clive Cowdery’s Resolution Life was thankfully completed on Wednesday amid some concerns COVID-19 may have intervened.

AMP may have started off as a mutual-based life company but is now a simpler business, which may also mean an easier break-up story, with AMP bank to marry one of the regionals to create a bigger bank, AMP Capital a well-run asset manager, and financial advice a stand-alone business that could thrive in the right conditions.

Pre-COVID valuations from UBS put a break-up value of $6.3bn on the company, or $1.80 a share, which is roughly where it is trading today at $1.88 a share.

AMP is not known for rushing into major strategic decisions, as the slow progress towards a life insurance exit showed.

AMP apparently lost the ability to manage life insurance. Overseas firms had a lower cost of capital and Resolution has top-class staff including, ironically enough, as chief risk officer a former AMP executive: Jonathan Moss.

The problem with life was that claims blew out, mental health emerged as a major challenge and the stigma of not returning to work in a hurry was reduced.

All of which made it tough to manage and by the middle of 2018 (a year after CBA had sold out) AMP decided to sell and Cowdery was an ideal suitor.

His business model is based on acquisitions, lower capital costs and well-run operations with quality staff such as the aforementioned Moss.

AMP stopped paying dividends earlier this year, so shareholders will be lucky to get much in August.

In its Wednesday release, AMP talked of a $1.1bn surplus from the $3bn sale that includes $500m to keep a 20 per cent stake in the Australian business.

It said: “AMP anticipates that any capital in excess of target surplus post completion will first be used to fund delivery of the new AMP strategy.

“Beyond this, AMP will assess all capital management options with the intent of returning the excess above target surplus to shareholders, subject to unforeseen circumstances and current economic and business conditions.”

In other words it didn’t say anything that gives shareholders much hope of anything much.

The waiting game continues.

Post-COVID brief

KPMG global law boss Stuart Fuller figures the post-COVID world is all about “building back better”, which means lawyers should focus on client solutions rather than finding the potential roadblocks.

The three key areas he thinks are supply chain resilience, business reorganisation and regulatory engagement.

Fuller’s top 10 post-COVID predictions for business and lawyers include:

● A shift to client experience, which means solutions over relationships.

● “Collabortition”, a new word that means competition and collaboration, or working together with rivals on a job.

● Automation and digitisation are two givens with COVID fast-forwarding trends that have been around for years but are edging forward.

● Foreign investment rules are tightening up around the world, with Australia, the UK, Germany and the US among the jurisdictions that have tightened rules in the crisis, so legal sovereignty follows economic sovereignty.

● Resilience will trump efficiency.

● Business will need to keep an eye on the past to deal with the claims that may flow from COVID.

● Governance will be different with more online annual meetings, electronic witnessing of signatures and virtual meetings.

● Post-COVID the community will still expect more of business and in turn lawyers.

● Finally, and perhaps more hope than reality, but lawyers will be embedded in business so the two will work closely together.

Fuller runs a team from Australia covering some 2700 lawyers and 80 different jurisdictions. The bottom line is lawyers need to be working with clients in solutions to past claims to expertise or relationships.

Bain in flight deck

Bain took possession of Virgin Australia on Wednesday ahead of the necessary creditors’ meetings next month, so while it’s full speed on debt reduction we can expect some noise yet from the Australian bond holders and the TWU.

Qantas boss Alan Joyce, always quick to flex his muscles, followed Rex’s move to fly on the golden triangle between Melbourne-Sydney-Brisbane with a quiet reminder he will start flying between Sydney to traditional Rex routes in Ballina and Orange.

In the Virgin camp, history is being rewritten around ownership of the company’s failure, but the facts show in 2016 former chair ­Elizabeth Bryan backed John Borghetti big time with a 26 per cent increase in base pay to $1.95m, accompanying increases in his short and long-term incentives.

Borghetti had flagged leaving Virgin at the time and ultimately gave his notice well ahead of his actual departure in June 2018.

Despite any muttering on television this week, Bryan was clearly a big backer of Borghetti and his strategy even if both failed in what was the obvious corporate move — privatisation. That is what happens when five shareholders control 92 per cent of the company.

Net debt was $3.9bn when Borghetti departed, but an accounting change meant $2bn was added to debt when aircraft leases were brought on the balance sheet, and more was added when the company bought back the 30 per cent stake in Velocity last year for $700m after selling it four years earlier for $335m.

Dumping battle

BlueScope’s Mark Vassella has talked the Anti-Dumping Authority into starting another steel inquiry, this time on zinc and aluminium-coated steel from China, Vietnam, South Korea and Taiwan.

The product Vassella is trying to protect is Truecore, which is used in building frames, competing with wood, among other products. He is also trying to put up the shutters on imported steel used in roofing, competing with BlueScope’s zincalume product. Some importers are bringing in coated steel then repainting it to compete with the BlueScope star brand.

The latest dumping complaints cover the field with claims against China and Vietnam for the smaller building frame steel, and South Korea and Taiwan for the roofing product.

BlueScope is a prodigious user of dumping rules, which impose duties on steel imported at below the normal cost in the country of origin and causing injury to the local manufacturer.

Vassella’s former colleague, Jason Ellis, is facing an ACCC cartel charge for allegedly threatening dumping action in an attempt to get Asian exporters to increase prices, with a further case management hearing due next month.

Vassella is well aware the mere lodging of a dumping complaint tends to freeze imports.

It doesn’t always go his way with claims against hot rolled coil from Taiwan showing no dumping, but it’s the talk of claims that disrupts trade and when prices rise it is Australian consumers who end up paying for it to help monopoly steel producers.