Published by Morningstar – 24th Oct 2018
Under-pressure Australian financial-services heavyweight AMP Ltd. (AMP.AU) has moved to exit a number of operations in deals it expects will net at least 2.17 billion Australian dollars (US$1.53 billion) and release capital to bolster its balance sheet.
In a statement Thursday, AMP said it had agreed to sell a portfolio of wealth-protection insurance and mature businesses, reached a reinsurance deal in New Zealand and decided to sell its New Zealand wealth-management and advice businesses via an initial public offering.
The company had been reviewing its portfolio of assets since February, but stepped up its efforts in the wake of damaging revelations that emerged during an ongoing probe into misconduct in Australia’s financial industry that sparked the departure of AMP’s chief executive and chairman and saw several board members step down.
AMP said it had agreed to sell its Australian and New Zealand wealth-protection and mature AMP Life businesses to Resolution Life Group Holdings LP in deal it valued at A$3.3 billion, including A$1.9 billion in cash. It also signed a binding reinsurance agreement with Swiss Re AG for its New Zealand retail wealth-protection operation that will release up to A$150 million in regulatory capital.
The company also said it aimed to launch an IPO for its New Zealand wealth and advice arm in 2019, which would strip out a business with operating earnings of about A$40 million but would release further capital for AMP.
Excluding the planned IPO, AMP said it expected net cash and preference shares in AMP Life of A$1.06 billion after costs, plus a further almost A$1.12 billion in income-generating equity investments in the operations it is offloading.
The deals mark a major step toward reshaping AMP as a simpler, more focused company, acting Chief Executive Mike Wilkins said. He said incoming CEO Francesco De Ferrari had a mandate to transform the company and the changes announced on Thursday would give him greater flexibility to set a new strategy.
AMP was forced to apologize in April for misconduct and failings in its regulatory disclosures revealed in a royal-commission inquiry into the wider financial industry, including allegation the company misled a regulator over fees charged to customers for advice it failed to deliver. In the wake of that, AMP’s CEO, chairman and several board members stepped down.
In testimony that month, the corporate regulator said eight financial-services firms have since 2013 reported breaches where they charged customers a fee without providing regular advice. AMP and the country’s biggest banks have been ordered to review financial advice to customers going back a decade, and have stepped up a process of compensation and remediation that for many companies is expected to continue into next year.
Mr. De Ferrari, a 17-year veteran of Credit Suisse Group AG (CS), which includes time as CEO of South East Asia, will take the helm in December. In June, David Murray, a former CEO of Commonwealth Bank of Australia and head of a government review of the financial system that concluded in 2014, took over as chairman.
Mr. Wilkins said 2019 would be a year of transition for AMP, with the planned IPO and the exit from the wealth-protection and other assets set to complete during the second half of the year. With those moves, he said the company would be focused on higher-growth operations and would have a strengthened balance sheet.
In the third quarter of this year, AMP’s Australian wealth-management business logged net cash outflows of A$1.5 billion but a A$579 million increase in assets under management to A$132.6 billion. The challenges for the wealth business were partially offset by resilience in its AMP Capital and AMP Bank units, with the Capital arm recording net cash inflows of A$521 million and the retail banking business’s total loan book steady at about A$20 billion, AMP said.
