AMP’s ‘absolutely chaotic’ situation set to continue as AGM looms for angry shareholders
AMP is a giant in the history of Australian finance. But he’s in dire straits, with a record share price, management turmoil and cash flowing out.
- Financial firm AMP holds its annual general meeting (AGM) on Friday, with its share price near record lows
- AMP Capital, its most profitable division, was put up for sale but did not find a buyer
- A new CEO will take office in September
The Australian Mutual Provident Society opened its doors over 170 years ago, becoming AMP: a wealth manager providing services to millions of Australians.
When its Circular Quay headquarters were opened by Prime Minister Robert Menzies in 1962, it was nearly twice the height of any other building in Sydney and a shining reflection of Australian ingenuity.
“I think it a matter of pride, sir, that this society, which began in this modest and hesitant way in 1849…is today the largest mutual life society in the British Commonwealth,” he said.
No one uses the word “greatest” in relation to AMP now.
“Absolutely chaotic,” were the words chosen instead by Helen Bird, a specialist in corporate governance at Swinburne Law School.
“We’ve seen chairman changes, CEO changes, we’ve seen various directors leave and problems all over the (newspapers) every day… the consequence of this is that we go from one crisis to another.”
Brett Le Mesurier, senior banking and insurance analyst at Velocity Trade, said the company was “really stuck in a bind.”
It’s been dropped by a suitor, revenue is an issue, and costs aren’t dropping fast enough to allow them to compete with a larger organization or digital native start-ups.
“There are so many problems,” he said.
“They are not only related to the earnings outlook, the earnings history, but they are also related to the decision making that the company has undertaken.”.
AMP’s stock price closed at $1.10 each yesterday, which was a record high.
Tomorrow’s annual general meeting will be held virtually, but that won’t stop angry shareholders concerned about the destruction of corporate value. Five years ago, a share of the company was worth almost $6.
AMP is still making money and a 10 cent dividend was paid in October after the sale of the life insurance business AMP Life.
Market volatility and COVID were blamed by the company for causing after-tax net profit to drop 33% to $295 million in fiscal 2020.
The company still holds $20.2 billion in home loans and AMP Capital has $193.8 billion in funds under management, though that’s down 7% for the year.
Long history of misfortunes
Retired auto industry executive Ray Lawson purchased his first AMP products more than 50 years ago, when the building at Circular Quay was the tallest in the country.
“Back then, AMP meant trustworthy and reliable,” he said.
“I was very positive. When they built the second (skyscraper) behind, I thought, ‘They’re going up.'”
When the company demutualized, policyholders like Mr. Lawson were offered shares. Given the option of buying more shares in lieu of dividends, his stake grew to over a thousand.
At one point they were worth over $15 each.
“You’d be lucky to have lunch at Maccas with (a slice) now,” he joked, blaming senior management for overseeing decades of decadence.
“Mega-dollar salaries and bonuses! They say, ‘You have to pay the best to get the best,’ but I don’t think they got the best.”
Major AMP shareholders declined to comment on this report or did not return the ABC’s approaches.
The release of quarterly figures last week showed an additional $1.5 billion in “outgoing”, or money leaving the company, although almost a third of that was regular pension payments.
“We are accelerating change within AMP, having made great strides in resolving our legacy issues, including our customer remediation program, which is nearly 90% complete,” noted a statement from the director. outgoing general Francesco De Ferrari.
“We remain focused on delivering on critical priorities to advance our transformation over the next quarter and continue to position the business for future growth.”
Speculation over Mr De Ferrari’s departure caused the shares to halt trading in March.
The company denied the departure of its leader for less than three years, but a week later a new chief executive was announced.
Evidence presented to the 2018 banking royal commission revealed poor behavior by senior AMP staff and terrible results for clients. It started a shattering slide for the company.
The company, now valued at around $4 billion, has been torn for lying to regulators and charging hundreds of millions of dollars in so-called “no service fees”.
It lost its chief executive Craig Meller early in the commission hearings.
Then-chairwoman Catherine Brenner left after it was revealed she had suggested several edits to an internal scandal report, which was then sent to regulators as an independent account.
The extent of AMP’s poor relationships was summed up in a grim example: 3,124 AMP clients were billed approximately $922,000 in life insurance premiums, despite the company being notified of their deaths.
This led to an excruciating exchange between commissioner Kenneth Hayne and Paul Sainsbury, then head of AMP’s wealth management solutions group and chief client officer.
Hayne: “Making someone who’s dead pay life insurance premiums, that’s the position, isn’t it?”
Sainsbury: “Yes, that’s how the system treats it today for some of our business.”
Some superannuation clients were being charged fees so high that even though their assets were held entirely in cash, AMP’s exorbitant fees meant their investment was eroded.
The company later agreed to reimburse customers in this situation.
But a new managing director, Francesco De Ferrari, and chairman David Murray did not stop the scandals.
Last year, the CEO appointed Boe Pahari to lead the company’s most profitable division, AMP Capital.
The board was aware that a former executive, Julia Szlakowski, had filed a sexual harassment complaint against Mr Pahari in 2017, which resulted in a 25% reduction in his annual bonus.
Ms Szlakowski later accused AMP’s board of downplaying her complaint, with the company calling Mr Pahari’s behavior “low level”.
Mr. Murray resigned, as did another director, and Mr. Pahari was demoted to his original post.
“It is clear to me that, while our strategy enjoys considerable support, some shareholders did not consider the promotion of Mr. Pahari to CEO of AMP Capital to be appropriate,” Mr. Murray said in a statement. communicated.
New president Debra Hazelton called it a “portfolio review,” essentially putting everything in the business up for sale.
Ares Management, based in the United States, considered taking over the whole company, then part of it, then pulled out of the whole business.
Last week, AMP announced that it would separate from AMP Capital and that Mr. Pahari would leave.
What destination now?
David Haseldine is emblematic of the issues of the AMP. Now an independent financial planner, he spent nearly ten years as a company representative.
“There’s no escaping it, AMP doesn’t have an identity at the moment,” he said.
“He sold the life insurance companies, he tried to sell everything else that wasn’t nailed down…with limited success.”
Hundreds of financial planners have been forced out of business by AMP as it attempts to cut the number of advisors lined up by a third.
AMP had a longstanding agreement that it would buy and sell planner businesses at four times each company’s annual revenue.
But a new agreement has reduced the rate to pay only two and a half times the income.
“There was no choice, absolutely no choice,” Mr. Haseldine said.
“Those who this happens to would say AMP is stealing the business and their livelihood and throwing their reputation down the drain in the process.
“It’s just wrong in anyone’s language.”
Planners have launched a class action lawsuit against the company. AMP said it would defend the claim. The company is also facing a class action lawsuit brought by customers who allege they paid excessive insurance premiums.
“I think it would be fair to say that they would have been engaged in almost full-time crisis management since the days of the Royal Commission, if not earlier,” Ms Bird said.
This distracts from the main challenge: running the business.
“What is the strategy of this company? What are we doing?” Ms. Bird asked.
“One minute we put it on the block, one minute we take it off and say we’re gonna float AMP Capital?
” What do we do ? What is our core business? And where are we going? »
Shareholder Ray Lawson will not be attending the annual general meeting and he sees no path to greatness for the once mighty company.
“Not at all,” he said. “I’m kind of just…desperate with them.”