AMP’s watershed moment as clock ticks on prized private markets unitJOYCE MOULLAKIS
AMP’s ability to execute the spin-off of its prized private markets division will be closely watched over the next nine months.
8:58PM AUGUST 12, 2021
The onus is now well and truly on AMP, through its refreshed board and executive team, to get right the execution of a spin-off of its $50.6bn prized private markets unit.
For long-suffering AMP investors the clock is already ticking as the division – which houses the real estate and infrastructure equity and debt investments – has already been under attack by competitors.
Real estate groups and others have been targeting management of the funds, and teams and individuals have also been picked off.
The next key date for shareholders is an update scheduled for November ahead of operational separation for the private markets business by the year’s end.
That’s a big task in itself but given AMP has been through a similar process when it sold off its life insurance operations, it should understand the scale of the project. New chief executive Alexis George had to separate ANZ bank’s life insurance operations and oversaw the sale of its advice and investment business to IOOF too, so she represents a safe pair of hands.
George was formerly ANZ’s deputy chief executive and started in the AMP hot seat on August 2, in the thick of Covid-19 lockdowns in Sydney.
First, though, AMP is trying to retain the management of its wholesale office fund where investors have been weighing a move to replace it.
That follows the loss of AMP’s diversified property fund in April when unitholders voted to merge with a Dexus fund.
George is optimistic AMP can hang on to the wholesale fund given its strong performance and the group’s “clear plan” for the private markets demerger.
Still, several investors are cool on the idea that AMP should retain a stake in the demerged business on the ASX. The argument is that residual stake – AMP wants to hold up to 20 per cent – creates uncertainty about the sale timing of the block and downward share price pressure.
Asked by this column, George said the spin-off plan was still in its early stages and AMP was working through understanding what was required for the new entity. She noted, though, that AMP would not be a long-term owner of the private markets stake either way.
AMP CEO Alexis George. Picture: John Feder
“What is the balance sheet going to look like, what does the support that (AMP) limited may have to give capital in the short to medium term?
“That’s why we’ve been a little bit vague about the up to 20 per cent. I just think we need to work through that over the coming months … it was important to be clear to the market that we don’t see ourselves being a long term holder of that interest, it would be to help with that transition and give us a bit of flexibility as we work through the balance sheet separation.”
AMP is establishing independent governance, a new brand and perhaps most importantly a management equity plan for the demerged company. Staff expect the latter in early 2022.
Compo program
AMP provided a key update on its customer compensation program on Thursday, and while the payments are only getting to customers at a trickle, the file reviews are complete.
About $210m in customer remediation has been paid by AMP to date and a further $5m has been offered to customers.
The initial estimate for AMP’s compensation program was $778m and the final number after the file reviews is $823m. The bulk of the rise reflects a further $33m provision for paying back customers who were charged advice fees, but didn’t receive any service.
Of the $823m amount, $596m represents payments to customers, with the remainder reflecting costs related to running the program.
After the Hayne royal commission in 2018 and its report – in which AMP’s conduct was highlighted as among the worst performers – analysts had feared the group would need to markedly up its remediation estimate.
That hasn’t eventuated, but AMP does need to ramp up payments to customers to draw a line under the whole sorry affair.
The refunds paid out to customers at the major banks have ballooned as they have conducted in-depth analysis of their books and conduct.
CBA on Wednesday outlined an additional $114m in customer compensation charges, with finance boss Alan Docherty labelling that the “most disappointing” aspect of the annual results.
AMP’s remediation program is now without former customer advocate Melanie Howard-McDonald, former prime minister John Howard’s daughter. She started at another highly-challenged business this month, joining NSW insurance group icare as customer advocate, after parting ways with AMP in February.
AMP has filled the customer advocate role internally, but the remediation program is being run by Craig Dainton, the deputy chief financial officer.
AMP is far from through the fallout from the royal commission and a spate of conduct scandals that hit the business in 2020. George will be hoping this is the tail end of the torrid period for the company, that claimed the jobs of two AMP chairmen.
The corporate regulator in July lodged civil legal action against AMP, alleging it charged fees for no service to large numbers of superannuation customers. Separately, class actions are also looming in the background.
To its credit, the AMP board has approved a 15 per cent cut in director and committee fees, effective August 1. It will review fees again following the demerger’s completion.
That goes some way to reflecting the shrinkage in the company’s market size.
AMP Price at posting:
$1.14 Sentiment: Hold Disclosure: Held
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