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AMP Facing Significant Headwinds

Stuart Lucy

Stuart Lucy is an Investment Specialist at the Australian Stock Report, and has gained exposure to funds management and investment banking throughout his career. He draws on this experience to provide macroeconomic commentary and actionable investment insights to clients. Stuart is responsible for writing reports, is involved in delivering Macrovue webinars and provides general advice to our members on portfolio construction. Stuart currently holds RG146 General and Securities qualifications.

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-business

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.

 


 

Disclaimer:

This article has been prepared by the Australian Stock Report Pty Ltd (AFSL: 301 682. ABN: 94 106 863 978) (“ASR”). ASR is part of Amalgamated Australian Investment Group Limited (AAIG) (ABN: 81 140 208 288 Level 13, 130 Pitt Street, Sydney NSW 2000).

This article is provided for informational purpose only and does not purport to contain all matters relevant to any particular investment or financial instrument. Any market commentary in this communication is not intended to constitute “research” as defined by applicable regulations. Whilst information published on or accessed via this website is believed to be reliable, as far as permitted by law we make no representations as to its ongoing availability, accuracy or completeness. Any quotes or prices used herein are current at the time of preparation. This document and its contents are proprietary information and products of our firm and may not be reproduced or otherwise disseminated in whole or in part without our written consent unless required to by judicial or administrative proceeding. The ultimate decision to proceed with any transaction rests solely with you. We are not acting as your advisor in relation to any information contained herein. Any projections are estimates only and may not be realised in the future.

ASR has no position in any of the stocks mentioned.

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