Financial Advisory Firm, AMP Under the Investors’ Radar

Summary

• Year 2020 has been rough for AMP as the company faces hefty outflows and lawsuits amidst pandemic concerns.
• CEO Alex Wade resigns effective immediately and Blair Vernon, CEO of NZ Wealth Management replaces him as Acting CEO.
• AMP expects A$140-150 million underlying profit for retained businesses during 1H20, given market volatility and AMP Bank’s credit loss provisioning.
• Market is eyeing AMP’s upcoming 1H20 results on 13 August to gain insight into its transformational strategy and expected use of proceeds from AMP Life sale.

AMP Limited (ASX:AMP), Australia's wealth giant, has announced Alex Wade’s resignation as Chief Executive of AMP Australia, its domestic wealth arm. The announcement comes amid the firm facing hefty outflows and lawsuits. AMP may face

action by the end of this year; the Australian Securities and Investments Commission (ASIC) has put a deadline on law enforcement. They have at least five active investigations against Australia’s largest financial advisory firm.

The resignation is accepted by AMP and Wade will leave the company immediately. AMP informed in a statement that the CEO of the New Zealand Wealth Management (NZWM), Blair Vernon is now appointed as Acting CEO of the AMP Australia. The company is still looking for a permanent replacement.

As mentioned in the official statement, after leading some significant changes as CEO NZWM, Mr Vernon will join the new role immediately, and Jeff Ruscoe will take the position as Acting CEO, NZWM.

AMP did not reveal the reason for Wade's resignation.

Wade was promoted to lead AMP Australia about 18 months ago. He had joined AMP in January 2019, and in less than two years the company announced his immediate departure. He previously worked in Credit Suisse for around 12 years in various roles.

On the AMP Australia leadership changes, AMP Chief Executive Francesco De Ferrari said, that the company has a strong team in AMP Australia and they have transformed the business. The team has also managed successful separation of AMP Life while reshaping advice. The company is delighted to welcome Blair Vernon to lead the team of AMP Australia, and the company believes that Vernon will continue to drive the effective strategies forward.

Mr De Ferrari had also worked at Credit Suisse for 17 years.

AMP under the Spotlight; Upcoming 1H20 results on 13 August

This year has been a lot unstable for AMP Australia as this announcement comes just days after AMP's largest unit warned of A$4.4 billion ($3.17 billion) in net outflows in the 1H 20 results update.

On 31 July, AMP Ltd provided an update on its 2020 interim operating earnings. This report included the impact AMP had on its business due to market volatility and economic disruption due to COVID-19.

The result has been impacted by various factors such as a credit loss provision in AMP Bank after the government eased rules on withdrawals from pension funds due to the pandemic.

AMP stated in its 1H 20 results update that it has prioritised servicing clients during this period. It temporarily increased its resources and maintained business resilience, which resulted in the additional costs in the company. Moreover, the pandemic had a considerable impact on the investment spend, along with a cost reduction program.

The AMP remains committed to delivering A$300 million of annual run-rate cost savings and its transformation investment of A$1.0-1.3 billion. Despite challenging circumstances, AMP mentioned in the update that it has successfully completed the complicated sale of AMP Life. AMP's remediation program is on schedule, and it is expected to be completed 80 per cent by the end of FY 20.

Market is eyeing AMP’s upcoming 1H20 results on 13 August to gain insight into its transformational strategy and expected use of proceeds from AMP Life sale.

While the company has already shared a detailed report on its 1H 20 results, the market is already updated on what to expect from the final announcement. The figures which were released are yet to be finalised and audited.

Half Yearly Guidance

But overall, AMP is expected to report underlying profits between $140-150 million in its Australian and New Zealand health management firm, AMP Bank and AMP Capital.

Below are some other guidance:

• For 1HFY2020 ended 30 June 2020, AMP expects that its retained business unit operating earnings would be ~A$195 million.
• Australian wealth management- The company expects its 1HFY2020 operating earnings of ~A$60 million.
• AMP Capital: The operating earnings from this division would be ~A$70 million.
• AMP Bank: Operating earnings is projected to be A$50 million.

Though AMP's H1 update provides clear visibility on its earnings, the outlook on the dividend is yet unclear. Industry experts believe that AMP will not be able to pay FY20 dividends but will resume paying it in FY21 and FY22.

ALSO READ: A Glance at AMP’s stance as S&P degrades its rating

AMP in Legal Trouble

In 2019, after the 170-year-old company merged with wealth management and bank businesses, AMP Australia was created. The merger was a result of a strategy to simplify the company. During that time, Wade was promoted to lead the merged business, prior to which he served the company as group executive to oversee AMP's adviser network.

On Wednesday 5 August, ASIC Deputy Chairman Daniel Crennan informed the Federal Government's Economics Committee that they are investigating "significant number of matters" within AMP, ranging between 5 to 50.

This came as a big shocker to the market. ASIC stated that the coronavirus pandemic outbreak is making the investigation difficult as they are not able to conduct face-to-face interviews amid allegations of misconduct. The warning from ASIC came for a lawsuit after ASIC's Deputy Chair Karen Chester said, she was disappointed to see delayed action from the banking sector to payback wronged customers.

The legal action against AMP would likely to be on revelations coming from the Royal Banking Commission, which also includes charges on fees for no services. On which AMP said they would help ASIC in any investigation.

Another scandal was added in the list when the money manager Boe Pahari was appointed as CEO of AMP Capital. AMP was fighting four class action and was forced to defend the appointment. Pahari was fined $500,000 for sexually harassing an employee.

AMP stock was last traded on 6 August at A$1.445 with a market capitalisation of A$4.9bn. The stock has generated 25.6% YTD return.