Reluctant AMP won't open up on Pearl Comment by Bryan Frith September 24, 2002
If at first, and second try, you don't succeed ...
AMP has still not come clean as to when it became aware that one of its UK operations, AMP Pearl, was in breach of the MRC (minimum regulatory capital) requirements for its "with profits" business.
AMP has now had two attempts at ensuring a fully informed market since it disclosed the breach last Wednesday -- tucked away in the midst of a prospectus for a raising of up to $1billion ($750million base) of reset preference shares.
The second of those clarifications came about because the corporate regulator, the Australian Securities and Investments Commission, wasn't satisfied with the company's first effort.
Moreover, it took almost two days before ASIC could extract a statement that it would accept. ASIC is believed to have rejected at least one statement that AMP proposed to issue.
AMP's reluctance to specify when it became aware of the breach is perhaps understandable. Failure to have made immediate disclosure would demonstrate that AMP was also in breach of the Australian Stock Exchange's continuous disclosure rules.
The fact that AMP's share price has plunged $1.90, or almost 15 per cent, since the MRC shortfall was disclosed demonstrates that the information was price sensitive and required disclosure.
Prima facie, the fact the breach was disclosed in the prospectus indicates that it was known to AMP for some time before the document was printed. But how long -- two or three days, two or three weeks, or even longer?
AMP has also not disclosed the extent of the breach, which is deliberate as it has refused to divulge that information to this commentator. But reading between the lines, AMP appears now to have a buffer of about $500 million, after pumping in an additional $1.42 billion, which suggests that it was more than $900 million short.
On Wednesday, as the market learnt of the prospectus disclosure, AMP's share price fell 48c. On Thursday morning, AMP issued a statement that sought to hose down investor concern. AMP stressed that it remained well-capitalised and able to support its UK Financial Services operations, and confirmed that it expected to meet its MRC requirement by the end of 2002. AMP intended to close the with-profits fund, which accounted for only 10 per cent of new UK business.
But it failed to satisfy the market and AMP's share price plummeted a further 99c. It also failed to satisfy ASIC, which sought the release of an expanded statement. AMP informed this commentator last Thursday it would be making a further statement that day, but later that night said that it wouldn't be coming because the company was still talking to its lawyers.
The statement was then expected to be made early on Friday.
It's suggested the reason the statement wasn't made was because ASIC wouldn't agree to the proposed wording. Also, it took another day before the two parties could agree on the wording -- AMP's statement was not released until Friday night.
That contained further information about the MRC position but AMP's share price still fell a further 43c to $11.41, after sales down to a new low of $11.25.
ASIC said yesterday that AMP had assured it that all material information relevant to the MRC issue had now been disclosed; on that basis ASIC would allow the reset pref offer to proceed, provided AMP issued a supplementary prospectus containing the additional information.
AMP said that it had been liaising with the UK's Financial Services Authority since mid-June in relation to its ongoing regulatory review. That coincides with AMP's first warning, on June 21, that it intended to increase the capital allocated to the UK by $1 billion because of a decline in the UK equity market.
The FTSE index by that stage had fallen 30 per cent since the start of 2002.
AMP had previously stated that a 100-point movement in the FTSE affects its UK solvency by pound stg. 120 million ($340 million). The FTSE had fallen 637 points, from 5217 points to 4580 points, by June 20, which suggests a back of the envelope fall in the capital position of $2.17 billion. That would suggest that AMP Pearl at that stage met its MRC requirements, but that the FSA and AMP were concerned that it may not continue to do so.
By September 19, the FTSE was down to 3813 points, a fall of more than 1400 points in the first nine months of the year. That would suggest a deterioration in solvency of almost $4.8 billion, and AMP Pearl no longer met the MRC requirement.
AMP said it would make available an extra $1.42 billion to support the Pearl with profits funds. Of that, $1billion was the first allocation and was used to acquire assets that are inadmissable for the MRC test.
That leaves a further $420 million that will be used, if needed, to further restructure inadmissable assets. But that will be used up if the FTSE falls below 3700 and AMP would need to look at other measures.
AMP has indicated that rather than contribute further capital, it would prefer other initiatives, such as accelerating the closure of the with-profits fund.
AMP shareholders need to keep a close watch on the FTSE. It closed at 3860 points on Friday but the market is jittery and a fall below the crucial (for AMP) 3700 points cannot be ruled out.
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