A loss of trust puts AMP in the wilderness

AMP old-timers look at the company that once dominated their working lives with a mixture of sadness and relief.

Former AMP CEO Craig Meller with chairwoman Catherine Brenner. Picture: John Feder

AMP old-timers look at the company that once dominated their working lives with a mixture of sadness and relief — sadness at the swift decline of the 169-year-old icon into a bedraggled heap, and relief that the finger of blame is now pointed elsewhere.

The truth is that AMP was in deep trouble long before the storm troopers from the financial services royal commission arrived to shred its last vestige of credibility.

The company’s advice-led strategy had already divided the market, and the completion of proposed asset sales was thrown into doubt by chief executive Craig Meller’s intended departure before the end of the year.

When advice boss Jack Regan caused all hell to break loose by acknowledging to the royal commission that AMP had not only lied to ASIC 20 times about its fees-for-no-service scandal but had doctored a so-called independent report by law firm Clayton Utz, it was time for investors to flee and take shelter.

“It’s almost two decades since I left AMP so I’m glad in a sense that I’m blameless for much of what’s happened,” a company veteran says ruefully.

“But I’m just so saddened by it all, and even worse I can’t see how they’re going to recover.”

The AMP crisis reached a new level yesterday after The Weekend Australian broke the news of a crisis board meeting to be held tomorrow in Sydney.

The meeting could be the last one attended by embattled chairwoman Catherine Brenner.

It follows a further public shaming of AMP in the royal commission, with senior counsel assisting Rowena Orr alleging in a submission that the company had committed criminal offences on four of the 20 occasions it had misled ASIC.

AMP, she said, had adopted an attitude to the regulator that “was not forthright or honest” and ­demonstrated an attempt to mislead.

Orr said it was open to commissioner Ken Hayne to find chairwoman Catherine Brenner, Meller and “particularly” group counsel Brian Salter “either marked up or suggested amendments to the Clayton Utz report”, noting that AMP did not make any reference to this conduct in its submission to the royal commission.

She attributed the misconduct to a poor culture and lack of governance controls that made it seem acceptable for AMP executives to deal with ASIC in a dishonest manner.

Orr’s explosive submission came only days before the May 10 annual meeting. While Brenner is not up for re-election, the Australian Shareholders’ Association has urged her to resign immediately or step down pending an independent investigation because her position is “untenable”.

AMP’s implosion begins with its demutualisation in 1998. Picture: Hollie Adams

The ASA advised members to vote against the three AMP directors up for re-election, with proxy advisory firm CGI Glass Lewis supporting the ASA’s call except in the case of Andrew Harmos because he only joined the board last June.

Industry super fund First Super said yesterday it would also vote against the three AMP directors, citing advice from the Australian Council of Superannuation ­Investors.

The story of AMP’s implosion begins with its demutualisation in 1998, when it was first prised open for public scrutiny. Board minutes show that demutualisation was resisted through the early 90s because directors felt it was a “last ditch action” by distressed companies.

While access to capital would be welcome, such a move also came with significant cost and disruption.

Within six years, though, AMP was preparing to list, as deregulation of financial markets introduced in the 80s unleashed a wave of competition in products and distribution channels.

AMP’s traditional life insurance model was under concerted attack, particularly with the 1992 introduction of compulsory superannuation that offered a life insurance component.

Many of the company’s problems can be traced back to the way it responded to this existential threat.

Instead of focusing its energies on a segment like asset management, which would have chimed well with compulsory super, AMP rushed headlong into diversification both here and abroad. The consequences were disastrous.

The company listed on January 1, 1998, at an initial price of $10.23 and a market value of about $22 billion.

More importantly for then-chief executive George Trumbull, it had $7bn in surplus capital.

Trumbull promptly went on an acquisition binge, adding British funds manager Henderson ($1bn) and National Provident Institution ($3.6bn) to the Pearl acquisition ($2.5bn) that AMP had already made in Britain.

Up next was the catastrophic $3bn local acquisition of GIO, which ended up costing AMP more than $1bn.

Worse was to come in the mother country in 2000. With AMP nursing a massive exposure to British equities, the bull market came to an abrupt and costly end.

The company’s ambition to be a global financial services conglomerate lay in tatters as the share price hit a record low in 2003 of $2.72 — an eye-popping 73 per cent lower than its initial price on listing. The ensuring four years from 2003-07 under chairman Peter Willcox and chief executive Andrew Mohl is the only sustained period of outperformance by AMP since demutualisation.

WEB Business AMP share price

However, the value added by Mohl and his chairman was mostly due to a successful clean-up of past disasters rather than a growth strategy that raised hopes for a prosperous long-term future.

In truth, since demutualisation, the performance of AMP’s businesses — financial advice, banking, super, wealth management and its mainstay life insurance operations — has been woeful.

Funds under management over the last 10 years have edged up from $129bn to $188bn for a compound annual growth rate of 3.8 per cent.

The nation’s super pool over the same period has expanded at an average annual rate of 7.1 per cent. Long-term investment returns, as well, have lagged well behind rivals.

The average annual return over 10 years for the AMP Balanced Growth Fund has been 4.16 per cent, compared to 6.83 per cent for the industry fund Australian Super’s Balanced Fund.

Over the same period, the ASX300 index has grown at an average annual rate of 5.2 per cent.

AMP might have the nation’s biggest network of financial planners, but the 2800-odd advisers would be better off selling steak knives than the company’s investment performance.

The vertical integration model, where distribution and product manufacturing occurs in the same house, is also under acute pressure, not just in the royal commission but in Canberra as well.

Interim AMP CEO Mike Wilkins

This compounds the difficulty of finding a chief to take over from acting CEO Mike Wilkins.

Before demutualisation, the power of the AMP sales force was balanced by an all-seeing, all-knowing army of actuaries, according to a former executive.

But the balance had now changed, with the planners more than happy to up stumps and ply their trade elsewhere if they’re not treated to their liking. “So AMP now is really just a sales organisation,” the ex-executive says. “It’s not an easy business to be in when it’s hard to control the sales force.”