Troubles take their toll as Moody’s downgrades AMP

AMP Group’s corporate governance weakness is a governance risk under its ESG framework, the ratings agency said.

AMP CEO Francesco De Ferrari (pictured): AMP Group’s corporate governance weakness is a governance risk under its ESG framework, the ratings agency said. Picture: Britta Campion / The Australian

Moody’s Investors Service has downgraded AMP Group, AMP Group Finance Services and AMP Bank in a move the ratings agency said reflected the wealth manager’s weaker operating results, high outflows and sustained reputational damage from weak governance.

Moody’s on Thursday downgraded the entities to Baa2 from A3 and changed the outlook for all three to “stable” from “ratings under review”.

“Moody’s regards AMP Group’s corporate governance weakness as a governance risk under its environmental, social and governance framework, given its implications for the company’s compliance and reporting,” the ratings agency said.

“We expect the uncertain economic outlook and coronavirus-related early withdrawal of superannuation funds will continue to constrain the group’s ability to attract new funds and grow assets under management.

“This is partly offset by the continued strong fund inflows in the group’s asset management operations, which demonstrate a high level of resilience, partially mitigating the more challenging environment in wealth management.”

Despite the challenges facing the beleaguered wealth manager, whose reputation is in tatters following numerous scandals, including most recently the promotion of a man who had previously been accused of sexual harassment by a staff member, Moody’s noted that mandatory superannuation would be a supportive factor for its credit profile.

But negative pressure on superannuation fund inflows and margin compression was likely to constrain the group’s revenue generation and profitability, the ratings agency cautioned.

“While AMP’s transformation project should ultimately reduce costs and improve efficiency, the near-term investment needs will mean that improvements to net profits are likely to be limited in the next two years.

“AMP Group’s leverage, as measured by its debt-to-EBITDA, is high. This is partly mitigated by its sizeable liquid resources that could be utilised to reduce leverage if required. We expect that over time the group’s leverage measures will improve as it looks to reduce its debt levels,” Moody’s said.

AMP Bank’s non-performing loans ratio, at 2.88 per cent, was high relative to its peers, the ratings agency added.

The declining proportion of interest-only loans in its book was a positive, it said, with interest-only loans accounting for 22 per cent of gross loans in June, down from 27 per cent the previous corresponding period.

In line with its peers, 11 per cent of AMP Bank’s mortgage borrowers have deferred payments through the coronavirus crisis.

“While profitability has been sound we expect that earnings will come under negative pressure in fiscal 2020 as a result of the low interest rates environment and intense competition for lending assets and from rising credit costs,” Moody’s said.

Excess capital retained by the broader AMP group could be used to support AMP Bank if required, the ratings agency noted.