AMP's banking division will scrap or reduce 20 fees and charges to further simplify its product offering, after last week revealing huge cash outflows for the third-quarter 2018.

Nine special service fees will be removed and 11 will be reduced across AMP's banking operation. The fee cuts will be from its one-off transaction fees, and further simplifications will be applied across its product set, including mortgages, from next year, the bank said on its website today.

The statement also indicated customers in legacy transaction accounts will be moved to up-to-date products.

This follows on from last week's revelation AMP will sell its life insurance division at a discount, which became apparent during its third-quarter earnings briefing.

At the same time, management also revealed further outflows from its funds during the quarter, as clients responded to the damning evidence uncovered by the banking royal commission.

Morningstar equity analyst Chanaka Gunasekera last week reduced his fair value estimate for AMP on the back of what he describes as "alarming levels of cash outflows" – coupled with the "bargain" sale of its Australian and New Zealand wealth protection and life insurance business.

He revised his fair value estimate to $2.85 a share, from $3.40 previously.

AMP

The proposed sale price amounts to just 80 per cent of the life division's embedded value

Life division sale has pros and cons

Gunasekera believes the proposed sale price amounts to just 80 per cent of the embedded value of the sold businesses.

"On a positive note, the sale will significantly simplify AMP’s business model and materially reduce its regulatory capital requirements.

"It will also give incoming CEO Francesco De Ferrari more balance sheet capacity to turn the group around," he says.

Morningstar's revised fair value estimate assumes around $1 billion of proceeds from the sale will be used to buy back AMP shares, "on the expectation that its surplus capital needs will be reduced following the sale, but AMP did not provide firm guidance on what it proposed to do with the proceeds," Gunasekera says.

"The ultimate use of these proceeds will likely depend on the Royal Commission’s final report, potential future client remediation and damages claims, and the incoming CEO’s strategy," he says – a lack of clarity that adds to a continued high uncertainty rating for the stock.

Commenting on the high outflows during third-quarter, Gunasekera says these were higher than anticipated, providing "tangible evidence of the damage inflicted by the Royal Commission".

Withdrawals from AMP funds soared to about $1.5 billion in the third quarter, from $243 million in the previous quarter.

The division had total assets under management of $132.6 billion at the end of the quarter.
Shares fell 25 per cent in response to the news last Thursday, to a record low.

AMP's share price has halved since the inquiry into the Australian finance sector began in February.

 

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Glenn Freeman is senior editor, Morningstar Australia

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