AMP posts $2.5bn loss, dividend cut

AMP Limited has slumped to a full-year net loss of $2.5 billion and will not pay a final dividend as its sagging wealth management division impedes a reputational rebuild.

AMP's (ASX: AMP) hefty net loss for the full-year ending 31 December swings from a narrow profit of $28 million the prior period and comes after it booked a $2.4 billion first-half impairment on its life insurance arm AMP Life.

The company's underlying profit fell by 32 per cent to $464 million, compared to $680 million in 2018.

The firm on Thursday said the reputational impact for its Australian wealth management arm had continued, with earnings from the division halving to $182 million for the year, and net cash outflows rising to $6.3 billion, including $2.4 billion for pension payments.

Shareholders will not receive a final dividend this year.

Chief executive Francesco De Ferrari, however, stands to earn more for his work. As flagged in a separate release to the ASX, the chief executive's maximum potential short-term bonus has been increased to 200 per cent of his fixed base salary, up from a previous maximum of 120 per cent.

De Ferrari's annual base salary was set at $2.2 million when he was appointed in 2018.

Stock Chart | AMP Limited (AMP)

Share price from 15th Jun 1998 to 17th Feb 2020. Souce: AMP Limited Shareholder Centre

Morningstar equity analyst Chanaka Gunasekera says AMP's three businesses – Australian Wealth Management, AMP Capital and AMP Bank - performed as expected, and maintains his $1.95 per share fair value. Featuring was the steep fall in earnings from the struggling Wealth business and continued strong performance from AMP Capital.

The disappointment was the further capital losses in AMP Life: "The life businesses, which is in the process of being sold to Resolution Life, were hit by additional 'capitalised and experience' losses of $176 million in the second half of the year," he says.

Today, the stock is trading within a range Gunasekera considers fairly valued.

Gunasekera says AMP will continue to rely on AMP Capital and Bank to drive earnings growth over the next five years. AMP Capital continued to be the stand-out performer for AMP. Underlying net profit after tax of $204 million was nearly 19 per cent higher than 2018.

A recent pick-up in home prices and home loan approvals should also see stronger home loan growth in the near term for AMP Bank, Gunasekera says. Wealth, on the other hand, will take several years to turn around.

"We don't expect Wealth to achieve positive underlying net profit after tax growth until 2023," Gunasekera says.

"Continued net cash outflows in 2020 from the reputational damaged caused by the Hayne royal commission and margin compression from repricing of products, as well as disruption from financial advisers leaving the business, will continue to be a drag on earnings.”

More than two-thirds have been wiped from AMP's share price since March 2018. 

Gunasekera says the Wealth results could have been worse, pointing out that the group received a strong contribution from market returns to offset net cash outflows.

"The size of the net cash outflows reflects the reputational damage caused by the royal commission. Net cash outflows from AMP's retail platforms totalled $3.4 billion, compared with $1.7 billion in 2018, and cash inflows of $1.7 billion in 2017 (pre-Hayne).” 

Gunasekera is pleased to see the company is putting behind it some of the legacy issues facing Wealth, including customer remediation.

The market reacted negatively to Thursday's announcement, sending shares down almost 3 per cent to $1.775.

Established in 1849 as a mutual company, AMP demutualised and listed on the Australian and New Zealand Stock Exchanges in mid-1998. Over the last two decades, the share price has fallen over 80 per cent. 

De Ferrari said he was disappointed by the number of customers leaving the wealth management arm.

"The royal commission obviously had a reputational impact on AMP and is disrupting the whole industry," he said.

The commission, which delivered its final report last year, found widespread wrongdoing across the industry. AMP staff were found to have given inappropriate advice and charged clients for advice they never received.

More than two-thirds have been wiped from AMP's share price since March 2018. 

AMP is still repaying customers for its mistakes. It paid $190 million to customers in the second half of 2019, bringing the total refunded to $264 million overall.