AMP (ASX: AMP) is financial services company in Australia and New Zealand. AMP specialises in providing personal and business financial services that include superannuation and investment products, insurance, financial advice and a range of banking products such as home loans and savings accounts. Its market capitalisation is $A6.3 billion.
AMP announced on 15 July 2019 that the sale of AMP Life (the Australian and New Zealand wealth protection and mature businesses) to Resolution Life for a total of $A3.3 billion is highly unlikely to proceed. This is in light of the Reserve Bank of New Zealand’s decision of not approving the sale unless the assets held for the benefit of New Zealand policy holders are separated and ring-fenced. AMP also announced that they will not pay an interim dividend in respect of its first half profit for FY19.
Following this announcement, the AMP share price fell 15.8 per cent to around $A1.80, which is an all-time low.
The question for investors is whether it is a good time to buy AMP shares. The current low price provides an opportunity for investors. However, as a result of the Royal Commission into the Financial Sector, AMP has suffered significant brand damage. This is reflected in its wealth management business experiencing net cash outflows over the past year or so. AMP is in the process of re-structuring its leadership team, facing more proactive scrutiny from the Australian regulators ASIC and APRA, and facing a number of legal challenges and proceedings. There is also a risk that AMP may need to raise additional capital from shareholders to support the continuing ownership of AMP Life.
As an aside, the Reserve Bank of New Zealand’s decision on AMP Life suggests that it is acting more independently of the Australian regulatory (APRA) and is making regulatory decisions to protect New Zealand’s interests rather than rely on APRA’s regulation. This introduces a new risk for Australian financial companies who own a large part of the New Zealand financial sector. It impacts on companies like AMP but also the major Australian banks who will need to hold additional capital in New Zealand going forward.
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