The package presented today by AMP boss Francesco De Ferrari offers a clearer path to the future but is littered with potential minefields starting with an impending fight with his 2400 financial advisers.
Under the terms offered by AMP to become an adviser, you are paid four times recurring revenue on the understanding that when you leave, as a buyer of last resort, AMP will pay you four times recurring revenue and you get to keep the difference.
Those terms were today cut to 2.5 times and advisers are filthy because they think it is the company that has trashed its reputation not them.
The fact is the financial planning industry has trashed itself because it was built on the myth that we all need financial advisers when, in reality, most of us only need advice on a handful of select occasions in out life.
The royal commission was brutal on the advice industry because that is where a lot of the client stealing was taking place but at AMP the fees-for-no-service occurred when advisers left the industry and AMP was managing the book.
That is the beef from its advisers but their problem is the amount of goodwill for financial planners right now is not huge.
From De Ferrari’s perspective he is running a listed company and can’t justify paying the adviser a big exit multiple.
The big news in the package was the renegotiation with Sir Clive Cowdery at Resolution Life which resulted in a substantially better deal for AMP.
The exit price was cut by $300 million to $3 billion but of that AMP will get $2.5bn in cash instead of the $1.9bn under the fist deal.
It will own 20 per cent of a vehicle called Resolution Life which will house its Australian assets instead of a stake in the overall company, this too is a cleaner exit for AMP and one which was considerably better than the original deal.
De Ferrari’s pay was also altered to reflect the fact that AMP is now selling at a record low stock price of $1.73 a share and the fact when he joined the company it was trading at $2.45 a share compared to $3.44 when he signed on.
He still gets to earn decent money if he manages to improve market perception of the company.
A $650m capital raising is probably not the best start to that process but it is money AMP can use before the Resolution deal closes in the first half of next year.
If AMP matches industry stock performance over three years, he will collect $5.25m.
The earnings presented today reveal the future for AMP, with AMP Capital earning $120m to be the top earner in the company for the first time.
This business manages external funds in infrastructure and real estate and is going gangbusters with a 28 per cent lift in earnings.
That said, the reason why it is earning more than wealth is obviously because the latter is in the doghouse with earnings down from $204m to $103m.
Thankfully De Ferrari will focus more on integrating the bank with wealth management.
It is a business poised to grow with more money behind it.
Not to be forgotten is the $2.4bn impairment which effectively writes off the disastrous 2009 AXA acquisition which cost shareholders $4.3bn including $3bn in good will.
It was a deal which, with the benefit of hindsight, should not have happened.
Personnel problems remain, with nominated CFO John Patrick departing the company before even being officially anointed and instead the job will be filled by James Georgeson until a permanent pick is put in the chair,
Now the future rests with De Ferrari managing to boost wealth back to its past glory while letting the viable parts of the empire like banking and AMP Capital grow.
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