InFocus: Minus its big jewels, is the AMP crown worth buying?

So, Ares Management Corporation ran the ruler over AMP Limited and at the end of the exercise and just ahead of AMP’s full-year results announcement concluded that it was really only interested in AMP Capital.

No one will have been particularly surprised.

But the question now being posed is: having already sold AMP Life, if AMP were to now sell AMP Capital what would it have left?

The answer is that it would have AMP Bank, its platforms and superannuation business and, of course, the financial planning business.

But the problem for AMP is that notwithstanding its three-year transformation strategy it is the subject of a number of class actions, including one mounted by financial advisers over buyer of last resort (BOLR) arrangements, and it is still yet to complete a major financial advice client remediation project.

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The lesson that the AMP board can learn from the Commonwealth Bank is that if you want to exit your financial planning businesses then you need to be capable of underwriting multi-million dollar legal indemnities to cover the cost of the remediation that you already know about and that which may yet come as a surprise.

This much was made clear when the Commonwealth Bank provisioned for more remediation with respect to Count Financial which has been indemnified to the tune of $300 million.

According to AMP’s full-year results, its client remediation program is currently 80% complete and has thus far cost $405 million but any buyer who was looking under the bonnet of AMP Limited would have looked beyond the cost of remediation to the possible costs associated with defending and possibly losing class actions.

While AMP has asserted it believes it is on solid legal ground with respect to its handling of BOLR contracts, substantial costs would be generated if the court were to find against it because of the number of advisers who have complained about contracts which promised 4x and only delivered 1.5x.

There appear to be few companies big enough or brave enough to take on the financial planning elements of AMP Limited and most sensible licensees know that it is safer and smarter to operate on the basis of doing very little other than welcoming AMP advice practices in the event that they come knocking at their doors.

Which means that outside of AMP Capital, the remaining jewels in the somewhat battered AMP Limited crown are the platforms business – mainly North – and the superannuation business.

The problem for the superannuation business is that, in the wake of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, it has been losing a succession of corporate superannuation mandates such as Anglican Super. 

According to the AMP balance sheet, there were outflows of $1.8 billion through the loss of corporate superannuation mandates, and this was on top of the $1.8 billion AMP superannuation funds lost as a result of the Government hardship early release superannuation regime.

That means the shiniest remaining jewels are undoubtedly AMP Bank which posted a relatively minor profit decline in the circumstances of COVID-19 and the North platform which continued to grow assets under management (AUM) but saw minor declines in cashflows and profit.

In all the circumstances, can the AMP board afford to lose any more jewels from its corporate crown or would it be better served trying to finish the repair work?