Does AMP cut the mustard with investors and S&P Global Ratings?

Summary

• The share price of AMP has risen 43% between $1.11 on 24 March to $1.59 on 7 September.
• Lately, AMP has witnessed a rise in unsolicited interests and enquiries in its assets and businesses, which prompted the Company to undertake a portfolio review to evaluate every prospect in a measured and complete way.
• The firm has appointed Credit Suisse, Goldman Sachs, and King & Wood Mallesons to supervise the AMP’s portfolio review.
• In last few years AMP’s reputation was damaged after a public enquiry into the sector exposed charging fees for no service resulted in the exit of its Chairperson and CEO in 2018 followed by an exit of another Chairman, David Murray over handling of an employee misconduct complaint.
• On 7 September, S&P ratings downgraded the credit rating of AMP Limited by a notch to BBB-, moving it closer to junk status and stating challenges to its strategic direction.

The world is facing one of the biggest challenges of its time in the form of coronavirus that has resulted in widespread disruptions and economic hardships for consumers, businesses, and economies. The asset and wealth management industry could give a preview of the overall economic atmosphere, provided how strongly revenues are connected to the capital markets.

As per PWC, publicly traded asset managers have experienced their share prices to drop 20% to 30% further since February. Sizeable sections of fixed income markets such as corporate credit is demonstrating increasing signs of pressure and market volatility. Also, downturn predictions have been rising, posing a hard time for the asset management industry.

Let’s have a look at how AMP has been performing amid coronavirus.

Established in 1849, AMP Limited (ASX: AMP) is an Australia-based wealth management entity that provides life insurance, retirement income, financial planning and superannuation as well as banking services. The Group is a diversified investment manager throughout equities, infrastructure, fixed interest, and multi-asset funds.

The share price of AMP Limited has risen 43.2%, from a low point of $1.11 on 24 March to $1.59 on 7 September.

On 8 September, AMP Limited’s share price was at $1.57, decreasing by 1.258% from its last close.

AMP to embark on its Portfolio Review

Lately, on 2 September, AMP announced to carry out a complete portfolio review of the assets and business units of the Group, sparking doubts amongst investors of a potential sale or break-up of the business that has witnessed its profits and reputation weakened by scandals of past few years. The veteran manager of retirement savings has appointed Credit Suisse, Goldman Sachs, and King & Wood Mallesons as advisers to oversee the review.

AMP updated that it has been making substantial progress in driving its strategy by reinventing wealth management, growing asset management franchise, and creating a simpler business.

However, AMP has witnessed an uptick in interest and enquiries recently. The Company also acknowledged that it occasionally gets unwanted interest in its assets and businesses. This prompted the Board to embark on a portfolio review to evaluate all opportunities, assess relative merits and prospective separation costs, as well as boost the stakeholder value.

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The review might conclude that the present mix of assets and businesses of AMP is providing the best value to stakeholders, and therefore, there would not be a proposal to follow any particular transaction.

AMP Chairman, Debra Hazelton stated that AMP possesses high-quality businesses with substantial strategic value. The Board believes that its current approach, comprising a repivot to private markets in AMP capital, will provide long-term value for stakeholders. Nonetheless, the firm has taken the decision of reviewing its portfolio to properly evaluate all alternatives to boost shareholder value in a systematic way.

Falling reputation and rating downgrade of AMP by S&P Global

The reputation of AMP was dented after a public inquiry into the financial sector revealed that the fees was charged for no service resulting in the exit of its Chairperson and CEO in 2018. Another Chairman David Murray exited the Company, over the management of an employee’s misconduct complaint on 24 August. Hence, the firm failed in alleviating fears sparked by these scandals.

AMP has also witnessed its funds under management to diminish as many clients left and due to COVID-19 turmoil troubling the markets across the world. Also, stimulus measure of early withdrawal of pension before retirement was undertaken by the government to save the economy from the economic fallout of coronavirus. This further corroded its funds under management.

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

On 7 September, the rating agency S&P Global downgraded the long-term credit rating of the financial planner giant AMP Limited and AMP Group Holdings Limited from “BBB” to “BBB-”, shifting it near junk status and referring to its tactical direction.

The rating assigned to AMP Bank by S&P was also reduced from BBB+ to BBB.

Source: AMP S&P Ratings update, dated 7 September

The agency stated that AMP was unprotected from certain difficulties, which could upset its strategic path and mentioned weaker governance standards than earlier. The agency also added that the departure of certain executives and board members has also been considered while making the decision of the rating downgrade.

AMP acknowledged the downgrade and stated that it remains to have a strong balance sheet and capital position, with eligible capital more than the minimum regulatory requirements of $2.2 billion, as on 30 June 2020.

The outlook for AMP Group units has improved to ‘stable’ up from ‘credit watch with negative implications’. All credit ratings given to AMP by other rating agencies continues to be unaltered.