AMP gets amped up – not for the faint-hearted though

AMP posted a $2.29 billion first-half loss on the back of a $2.35 billion impairment for a large-scale overhaul of its slimmed-down operations.

The banking and financial services company, which has plummeted in value since being hammered at last year’s royal commission, has announced a $650 million capital raising at $1.60 per share, to help pay for a $1.3 billion, three-year transformation program. Current AMP shareholders will be offered stock at $1.60 via a Share Purchase Plan.

The transformation will not include its wealth protection and life insurance businesses, which it has agreed to sell to the UK’s Resolution Life in a revised deal worth $3 billion. This is a significant step in reshaping AMP as a simpler, more focused group. They will not pay a dividend until the sale of AMP Life is completed.

Just to be clear, AMP will retain its wealth management business.

What is not clear is where they sit with their financial advisory network. While the revamp is a positive step, we are not sure what this will mean for the future of their financial advisory business – will they allow their financial advisers to receive commissions as a way of payment for their services?

We have seen challenges in many businesses asking consumers to pay full rates for the fee for service, without offsetting commissions.

Shares in the company hit an all-time low $1.715 on Wednesday and are now worth $1.88. They have lost more than 70% of their value in the past three years.

First-half earnings grew at AMP Capital and AMP Bank has remained resilient, delivering a first-half net profit of $309 million.

AFL fans would be familiar with the word “rebuilding”. Well, that’s the challenge at AMP.

So, let’s recap…

The “new” business strategy will focus on:

1. Australian Wealth Management: Providing customers with superannuation, retirement income, investment, SMSF administration and financial planning services (through aligned and owned advice businesses);
2. AMP Capital: A diversified investment manager, managing investments across major asset classes including equities, fixed interest, infrastructure, property, diversified funds, multi-manager and multi-asset funds; and
3. AMP Bank: An Australian retail bank offering residential mortgages, deposits, transaction banking and SMSF products. It distributes through AMP’s aligned distribution network as well as third party brokers, and direct to retail customers via phone and online.

They have a long way to go to rebuild client, investor and institutional trust, but could this be the bottom?

Any dirty laundry should now be in the wash. Any sniff of future dirty laundry should have been included in these dank results. All of this weighs on the share price (and should now be factored into the share price).

Remember that they have a great deal of client data, and data mining can be valuable to a company trying to “rebuild”.

Any current holders of AMP stock will get their opportunity to purchase up to $15,000 worth of stock at $1.60 via the Share Purchase Plan. Shareholders need to consider managing their position, but it’s not without risk – a bitter pill to swallow, but not without merit.

For anyone looking to own some AMP stock, now could be the time, but it’s not for the faint-hearted – only if you’re prepared to ride the ups and downs, which includes any wild swings in the market in general. Make sure your seatbelt is firmly fastened, and your tray is in the upright position.

If you have further questions, please don’t hesitate to contact our Client Services Team on (08) 9227 6300 or email at clientservices@ww2.austasiagroup.com.