Can AMP find a way out of its woes?AMP boss Francesco De Ferrari quickly needs to reassure despondent investors that he has a clear direction forward for the troubled group, rather than trying to reassure them with corporate buzzwords.
Does AMP boss Francesco De Ferrari have
any clue as to the way forward for the embattled wealth management giant?
Corporate leaders confess to being stunned by AMP’s failure to anticipate the possibility of being jilted by its suitor, the Los Angeles-based Ares Management Corporation, and by its failure to articulate a firm sense of direction for the hapless group.
Instead, De Ferrari released an investor presentation that was overflowing corporate jargon.
After Ares pulled its $6 billion bid, De Ferrari apparently thought it might cheer despondent shareholders to learn that when it came to AMP’s strategic portfolio review, “all alternatives are being explored in a considered and holistic manner”.
No one was fooled. As one corporate leader noted, “translated into plain English that just means we’ve spent a lot of time and money on this and we still don’t know what we’re going to do”.
One major investor was even blunter. “It’s really disturbing. All these companies looking at due diligence and then were not interested. There’s no way to sugar-coat that one.”
Other senior corporate figures were stunned that AMP simply didn’t have a plan B in case Ares withdrew its bid.
“They must have known that there was a good chance that Ares would back out of the deal,” noted one chairman.
“The fact that they’re still not in a position to announce a clear way forward, that they’re still talking about what to do with AMP Capital – which is their jewel – is extraordinary.”
He added that the time had come for De Ferrari to stop considering all the alternatives, and to instead articulate a firm strategic direction for the troubled group.
“They’ve tried as hard as they can to find a buyer,” he said. “They’ve had two outstanding investment banks – Goldman Sachs and Credit Suisse – scour the world for potential suitors.
“Surely it’s time to just decide what they’re going to do, so that they can give both staff and clients that clear direction.”
Meanwhile, major AMP shareholders are frustrated at the way AMP appears to be clinging to the hope that some deal can be resuscitated with Ares.
In its full-year results, AMP said it “continues to engage constructively with Ares in relation to AMP Capital”.
One major AMP shareholder argued that instead of exploring possible partnership options with Ares, AMP should be looking to maximise shareholder value by spinning off a stake in AMP Capital.
“The only way that they’ll be able to attract and retain good staff, reassure clients and relax investors is to do an initial public offering of a 49 per cent, or 25 per cent, stake in AMP Capital,” he said.
Market valuation“They’re not going to get a better price in a trade sale, so why not let the market decide what the asset manager is worth by doing an IPO?”
At the very least, he noted, AMP Capital was likely to be worth $3.07 billion, given that AMP paid $460 million last August to repurchase Mitsubishi UFJ Trust and Banking Corporation’s 15 per cent stake in the asset manager.
The market valuation of asset managers such as AMP Capital varies widely, depending on whether their assets under management are growing rapidly, the loyalty shown by investors, and the level of fees that they are able to charge for their services.
He noted that the fact that AMP Capital’s assets under management had fallen to $190 billion in the 2020 financial year, from $203 billion the previous year, would have eroded some of its value.
“AMP Capital was probably worth $5 billion a year ago. Now it would probably float for $3 billion.”
Still, he noted that a partial float, and a rebranding of AMP Capital would help to insulate the asset manager from some of the damage it had sustained as a result of being associated with the AMP brand.
Surplus capital“It needs to be spun out, so that it can continue to grow and attract investors, particularly for its infrastructure and real estate funds.”
In addition, he said, doing an IPO would help to lock in AMP Capital’s existing talent, and make it easier to attract new employees.
“People want to join a separately listed, separately branded company.”
Major shareholders are also frustrated that AMP is not in a position to return surplus capital to shareholders, because discussions with Ares are ongoing.
In its latest results presentation, AMP said it was sitting on $521 million in surplus capital. But some shareholders believe that this is a very conservative estimate, and that AMP’s actual surplus capital is close to $1 billion.
What’s more, they point out that in the present ultra-low interest rate environment, this surplus capital is earning a return that is close to zero.
They would prefer AMP to use this surplus capital to undertake a massive share buyback, which could reduce the number of AMP shares on issue by as much as 20 per cent.
Worthy aimsMeanwhile, corporate leaders were astonished at how threadbare AMP’s reinvention strategy appears to be.
“It’s just a jumble of management buzz words”, said one high-profile corporate boss.
The strategy involves such worthy aims as “redefining the business portfolio by shifting capital allocation to higher growth, higher return assets”, and “strengthening our culture to drive accountability, inclusion and high-performance”.
“Who can be against any of that?” asked one highly regarded corporate leader, “But it fails to answer the question: What are you going to do?”
He pointed out that on the fifth page of its results presentation, AMP boasts that it had launched wellbeing initiatives to support employees through the coronavirus pandemic, including virtual workshops and exercise classes.
“I don’t think the exercise classes are going to make the difference – these people clearly need a sense of direction,” he said.
“It’s really what they haven’t said when they talk about ‘Our People’.
“What are they saying about getting the right people in the right positions? What are they saying about giving them a sense of direction?
“Because that’s what people look for – they look for actual leadership from convincing leaders. They look for a sense of direction, a sense of what the future is for them. And AMP is not talking about that.”
Other corporate leaders noted that Ares’ takeover bid had been destabilising for all of AMP, including its important AMP Capital division. It was now up to De Ferrari to settle on a strategy, and then announce specific steps for implementing it.
“They have to make a decision, shut off the debate and fix on a way forward and stick to it”, said one corporate leader.
“That may mean shutting the door to some options, but that’s the price of stability.”
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