Ferrari has his foot to the floor with AMP’s turnaround strategy

AMP is looking to finally jettison its life insurance arm, rectify its past compliance failings and execute a turnaround strategy.

AMP chief executive Francesco De Ferrari. Picture: Britta Campion

AMP faces a critical juncture in 2020, as the 171-year-old wealth group looks to finally jettison its life insurance arm, rectify its past compliance failings and execute a turnaround strategy.

Chief executive Francesco De Ferrari, who took the reins in late 2018, has the mammoth task of simplifying the group and navigating a future course after decades of missteps and the destruction of shareholder value.

The wealth company, which was established as the Australian Mutual Provident Society and listed on public markets in 1998, has a history shaped and marred by a ­series of large acquisitions that typically backfired. They include British funds management group Henderson, Pearl Assurance, GIO Australia, National Provident Institution and the local operations of AXA.

That may explain some of the complexity in AMP’s business and subsequent compliance failings ­revealed in the lead-up to, and during, the 2018 Hayne royal commission. AMP was among the biggest royal commission casualties, losing its former chief executive Craig Meller and its former chairman Catherine Brenner.

For battered investors it has been a wild ride. In 2017, AMP had a valuation in the order of $18.8bn, which had tumbled to less than $5.3bn as of Friday.

For some aggrieved AMP customers entangled in its compliance shortcomings — through either receiving poor advice or being charged fees where services were not provided — it has also been a long battle.

Mr De Ferrari outlined his three-year AMP turnaround strategy in August, which includes a ­restructure of the financial advice business and the simplification of the superannuation unit.

“I’m pleased with the early progress but we have only just started and we need to build further momentum in terms of delivery,” Mr De Ferrari told The Weekend Australian.

“Our portfolio simplification is moving ahead with the sale of AMP Life on track to complete by June 30,” he said. “On New Zealand wealth management, we made a decision to retain the business and focus on developing it.

“We’ve taken significant steps to address the legacy issues.”

Fund managers are aware of the challenges confronting AMP and the turnaround plan, and some say that is already built into the flailing share price. “For the first time in many years, (AMP) management have acknowledged the need for a complete reset,” said Simon Mawhinney, managing ­director of AMP investor Allan Gray. “Directionally it seems like the right thing to do in principle.”

Mr Mawhinney said “time would tell” if Mr De Ferrari’s strategy was right, but on valuation grounds he thinks AMP shares are attractive. That’s particularly the case for him given market estimates of at least a $2.5bn valuation for AMP’s real estate and infrastructure arm.

“In our opinion, you don’t pay for wealth management when you buy AMP (shares), you get it for free,” Mr Mawhinney said.

Opal Capital Management principal Omkar Joshi said AMP’s earnings prospects and turnaround were further complicated by the COVID-19 crisis. “It’s a tough job and with the (economic) uncertainty at the moment, it is only tougher now,” he added.

“AMP has been a turnaround story for a very long time, and the challenges in the environment continue to weigh on them. It’s going to be a tough road for (Mr De Ferrari) to turn AMP around — Francesco is a good operator — but it’s a difficult industry.”

AMP and the big banks are in the process of repaying customers as much as $10bn in combined remediation over a range of scandals and poor conduct. AMP has set aside $778m for compensation and related costs.

This newspaper revealed this week that AMP was dragging out compensation deliberations with former customer Adam Check, whose financial adviser was banned by the corporate regulator for four years in 2018. He has been dealing with AMP’s customer advocate for at least two years, and has evidence of an internal review conducted in 2015 which showed he received inappropriate advice.

While he hasn’t met or spoken with Mr Check, Mr De Ferrari said he had engaged with many AMP retail and institutional customers.

“I always come away from the conversations with respect and ­insight,” he told The Weekend Australian. “Some have had specific issues, which we escalate. I aim to (engage with customers) regularly, but I would like to do more.”

Mr De Ferrari hasn’t discussed Mr Check’s matter with him, as AMP has a policy that stipulates executives cannot get involved in a dispute that has been referred to the customer advocate until a ­determination is made.

It’s understood following publication of Mr Check’s case it may be resolved by the end of next month.

Mr De Ferrari’s strategic plan has included changing the terms of AMP’s buyer-of-last-resort program for advice practices, cutting the number of wealth and super products, and ramping up growth across investment platforms, the bank and its real estate and infrastructure divisions.

“We’ve set some clear targets … $300m of run-rate cost savings by 2022, and $1bn to $1.3bn of investment over the three years of the plan. We’re also just this year completing a $100m investment in our risk controls and systems,” he said.

Investors are also keeping a close watch on the sale of AMP’s life insurance unit to Sir Clive Cowdery’s Resolution Life.

A recut deal includes a cash payment of $2.5bn and AMP ­taking a $500m equity interest in Resolution Life Australia. The transaction still requires further regulatory approval in Australia and a sign-off from New Zealand.