AMP Limited Witnessed $2.4 billion Wipeout In A Single Day

On 25 October 2018, AMP Limited’s (ASX:AMP) witnessed biggest one-day fall ever as the company’s shares slide from $3.310 on 24 October 2018 to $2.500 at the end of 25 October 2018. Due to this intraday slide, more than $2.4 billion worth of shareholder value was destroyed after the company agreed to sell its Australian and New Zealand wealth protection and mature businesses and hinted that the profits in its wealth management arm are expected to decline due to fallout from the royal commission. On 26 October 2018, the company’s share continued to slide down with 1.6 percent intraday decrease, reaching $2.460.

The company informed that it is planning to exit its Australian and New Zealand wealth protection and mature businesses through a sale to Resolution Life for total cash and non-cash consideration of AUD$3.3 billion which is expected to complete in the second half of the financial year 2019. As per the company’s executive Mr. Wilkins, the life sale will help in making AMP a simpler, more focused group that could focus on its growth areas of funds management, superannuation, and banking.Â

The company’s plan to reinsure its wealth protection business in New Zealand with Swiss Re will release up to $150 million in capital for the AMP. The company argued that this deal will simplify the AMP’s business and improve its earnings profile. On 25 October 2018, the company also released an update on its third quarter cash flows which revealed its higher outflows from funds management business.

After witnessing the sharp rise in the amount of money walking out the door at AMP, the investors ran for the exits, which resulted in a 24.7 percent intraday decrease in the share price of the company as on 25 October 2018.

The company reported that Australian wealth management’s net cash outflows have increased from A$243 million in Q3 FY17 to A$1.5 billion in Q3 of FY18 mainly due to weaker inflows while outflows remained at high levels in part following AMP’s appearances at the Royal Commission. AMP Capital’s external net cash inflows decreased from AUD$616 million in Q3 FY17 to AUD$521 million in Q3 FY18. The external net flows were mainly due to the equity raisings for AMP Capital’s flagship real estate funds and infrastructure debt and equity transactions in the US and Europe. AMP Capital’s share of China Life AMP Asset Management, the joint venture with China Life, reported AUD$78 million in net outflows for Q3 FY18 which reflects the transitional phase for new regulatory reforms and challenging equity market conditions in China.

In the past six months, the share price of AMP Limited decreased by 38.27 percent from $4.050 to $2.500 as on 25 October 2018, traded at a PE level of 13.890x. AMP’s shares traded at $2.460 with a market capitalization of circa $7.34 billion as on 26 October 2018 (AEST 1:22 PM).

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