They may now have to put all their faith in AMP boss Francesco De Ferrari and his three-year turnaround plan, which in his own words is “disentangling the value chain”.
The complexities and inefficiencies around AMP’S structure were no doubt a turn off for US-based Ares Management, which pitched its indicative $6bn-plus offer, but didn’t want to end up with AMP’s bank or wealth units.
Now Ares is focused on the jewel in the crown, the AMP Capital business, which straddles infrastructure, real estate and equities. But it is unclear how meaningful and progressed the engagement is on a bid for that division.
In August, AMP cleaned up the ownership structure of the capital unit by repurchasing Mitsubishi UFJ Trust and Banking Corp’s 15 per cent stake in AMP Capital for $460m. That gives a price signal for the entire unit of $3.1bn.
The collapse of the Ares whole- of-company bid, with no bidding tension, also raises questions about how AMP’s advisers ran the latest sale process.
AMP had Credit Suisse and Goldman Sachs working on the auction and strategic review, while the Debra Hazelton-led board also tapped boutique Blackpeak Capital as an independent adviser.
The investment banks went far and wide to drum up interest in AMP and its divisions, but the process has fallen flat. They chose to open the auction up very publicly to test interest, causing anxiety among employees, and the process gained little traction.
That is perhaps excluding a spate of early interest in the AMP real estate platform which was difficult to manage when the whole-of-company bid by Ares was revealed.
Price expectations for AMP’s bank — which actually saw its home loan book decline in size in 2020 — are said to have derailed any potential sale of that division.
AMP cited trying to preserve margin and return on capital for the slight decline in its loan book, when other small banks tapped cheap funding to grow volumes strongly.
What was clear from AMP’s 2020 profit results on Thursday is the business remains under pressure and continues to lose mandates and funds. Retention of key staff is a big issue and while lock-in arrangements have been put in place they need to be long enough to give any buyers certainty.
De Ferrari is trying to get on the front foot with his strategy, and deserves some praise for plotting real change, but he has to stem the fund outflows and stop the damage as well.
All four of AMP’s business units saw underlying profit decline for 2020, compared to a year earlier, and the COVID-19 rationale used by De Ferrari for some of the pain doesn’t stack up.
AMP’s nine-page ASX media release cited COVID-19 some 10 times.
But financial markets bounced back in the second half of calendar 2020, and other asset management businesses have fared better than AMP and even used the pandemic to pounce on opportunities.
Take Macquarie Group, which also operates in the infrastructure, real estate, banking and investment platform sector. On Tuesday, Macquarie said assets under management fell 1 per cent to $550.9bn at December 31, from the prior quarter.
At AMP Capital total assets under management decreased to $189.8bn in 2020, from $203.1bn a year earlier. The company linked the decline to the impacts of COVID-19 on investment markets and the higher internal cash outflows in the wealth division.
Coincidentally New York-listed Ares, which has a market capitalisation of $US13.1bn ($16.9bn), reports fourth-quarter and annual earnings overnight.
Culture wars
De Ferrari’s quest to fix AMP’s culture after several inappropriate conduct issues came to public attention last year, will be a long-term and evolving project.
He told this column the first thing he wanted to “lean into” was the group’s ability to execute and drive change, a perennial issue at AMP.
The second plank is driving shareholder returns and getting executive accountability right. He’s doing that by structuring units in a way that provides end-to-end accountability, so executives are more in control of their businesses.
The more interesting part of that is De Ferrari says that puts impetus on executives to deliver value and there are “less excuses” if things go wrong. He is also attempting to tackle the vexed issue of better overseeing executive and employee conduct.
“We are working on our performance management system and the last piece is on making sure we are best in class when managing conduct issues in the workplace,” he adds.
“Ultimately … you can have a lot of KPIs, but the way this get measured is are we continuing to remain a destination for talent in the market?”
This project will be a tough one for De Ferrari and a real test of his leadership qualities given AMP’s past and last year’s high-profile scandals.
Funding debate
As smaller non-bank lenders lament that deposit-taking institutions are getting a big funding-cost boost, there doesn’t appear to be much respite in sight.
The banks are accessing the Reserve Bank’s Term Funding Facility at 10 basis points, giving them ultra-cheap funding to write loans. Commonwealth Bank boss Matt Comyn on Tuesday said the nation’s biggest home lender had so far drawn down $19.1bn from the TFF, and had another $21.9bn available.
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