AMP to see outflows of $11bn in 18 months

AMP’s first quarter update showed that the wealth manager is losing the battle to retain funds as net outflows from the company’s wealth management business hit $200 million.

However, in an update released on Thursday morning ahead of its annual general meeting, AMP said net cash outflows - which were in line with the year ago same quarter- were caused by changes in super regulation.

The 2018 first quarter figure reflects subdued activity in super following non-concessional contribution cap changes in 2017, according to the wealth manager.

According to Credit Suisse analyst Andrew Adams, the first quarter flows likely won't matter for AMP investors, due to a string of events occurring post the close date.

Adams is predicting an outflow of more than $11 billion of AuM from AMP's wealth management business in the next 18 months and a slowing of growth elsewhere in the group.

Last insight 

That view jibes with UBS analyst James Coghill who added that the first quarter result presents the last insight into the pre-royal commission era.

"While this in theory should be a healthier organisation than the post-royal commission AMP, there is not much evidence of this in first quarter cashflows, in our view, with wealth in net outflow again and little growth elsewhere," he said.

Coghill noted that AMP Bank is the only division that reported positive growth.

In Thursday's release, the beleaguered financial services giant confirmed it been sued by unhappy shareholders in two separate class actions, arising out of damaging revelations that surfaced at the banking royal commission.

These shock admissions led to the recent departure of AMP’s chairman, chief executive and three board members.

AMP said it will defend the class actions launched by Phi Finney McDonald and Quinn Emanuel Urquhart & Sullivan.

Lending growth up

The first quarter showed AuM for AMP's wealth management unit fell 2 per cent to $128.3 billion on the prior quarter due to weaker investment markets.

However, while overall wealth suffered net outflows, AMP’s North platform was solid, with cashflows growing 14 per cent to $1.18 billion.This  was however offset by net outflows across all other platforms.  

In the release, AMP interim executive chairman Mike Wilkins pointed to the strong first quarter performance from both AMP Bank and AMP Capital.

The bank's total loan book rose 2 per cent to $19.8 billion on the immediately prior quarter supported by continued growth in loan books for both aligned adviser and mortgage broker channels.

Moreover, the lender's retail deposit book increased by $321 million compared to the 2017 fourth quarter.

For its part, AMP Capital logged net external cashflows of $1.6 billion driven by strong cashflows in real assets and strong performance by China Life AMP Asset Management.

This is up dramatically on the $228 million achieved for the year ago same period.

Remediation costs jump

Australian wealth protection annual premium in-force was $1.89 billion for the three months to March -  down just 1 per cent.

Despite the revelations at the royal commisison that AMP charged customers fees for financial advice that was never delivered, Wilkins said AMP stands behind its advice business. 

"However, we have been very disappointed that, in some instances, our customers have not received appropriate levels of service for the fees they have paid. We are working hard to accelerate the remediation for our customers," he said.

"We continue to progress the portfolio review, however we are currently prioritising the performance of the business, board renewal and the appointment of a new CEO."

AMP management noted that the current review in to adviser conduct will "lead to further customer remediation costs and associated expenses".

Adams is predicting $235 million of 'one-off' costs over the next 18 months for AMP.

On recently lowered earnings forecasts AMP is currently trading at a 30 per cent PE discount to the market. Given the uncertainty and corporate governance question marks, it is hard to argue that this isn’t justified currently," he said in a client note.

"However we also see a level of longer-term valuation appeal at current levels and hence maintain our Outperform rating with an unchanged $4.80 target price."

After the AGM, AMP shares plunged a further 3.19 per cent on Thursday to $3.96 as investors' nerves were stretched to the limit.