The fallout from the scandals exposed by Australia’s royal commission into financial services and the costs of remediation are behind life industry giant AMP’s plummeting profits.
AMP says it expects to report an underlying profit of about A$680 million for calendar 2018 but that net profit attributable to shareholders will be just A$30 million.
That’s down from an A$848 million net profit in 2017. First-half net profit was A$115 million, down from A$445 million from the previous first-half.
The results are still being finalised and will be subject to auditing.
AMP shares fell as much as 6 percent to A$2.49 on ASX in early trading. The shares have fallen more than 50 percent in the past 12 months.
AMP’s transgressions in Australia included charging for services never delivered and misleading regulators.They forced the resignation of its chief executive, chair and other senior officers last year.
“Recognising the second-half 2018 performance of the business, the related capital impacts and uncertainties in the operating environment, the board anticipates declaring a final dividend of 4 cents per share,” the company said in a statement. That’s down from last year’s final dividend of 14.5 cents per share.
Last October, AMP announced sweeping restructuring plans, including selling its Australian and New Zealand wealth protection and other mature businesses to British-based Resolution Life Group for A$3.3 billion.
It also announced new reinsurance arrangements for its New Zealand retail life business and the planned float of its New Zealand wealth management and advice business.
AMP says its total business unit operating earnings for the second half are expected to be about A$220 million, with A$325 million coming from its Australian wealth management, AMP Capital, AMP Bank and New Zealand wealth management and advice businesses.
It is expecting a A$105 million operating loss from the businesses it wants to sell to Resolution Life. That includes about $180 million of capitalised losses, reflecting AMP’s best-estimate assumption changes and about A$50 million of experience losses.
The British company will assume the risks and profit impacts from July 1, 2018 but AMP remains responsible for the operations and capital management of those businesses until the sale completes.
AMP says because of the life losses, it will have to reserve about A$100 million of capital until completion.
And then there are the ongoing costs of remediation.
AMP says remediation assumptions negatively impacted its capital position by about A$240 million in the second half, although it still expects its Level 3 capital to have been about A$1.6 billion above minimum regulatory requirements at Dec. 31.
AMP is foreshadowing further bad news: “In 2019, the earnings of the retained businesses are expected to be impacted by external market conditions, the regulatory environment, implications of the future strategy and a number of previously advised factors,” the company says.
Pricing changes to its MySuper product will cost it A$35 million after tax. Unwinding internal distribution arrangements, adjustments for tax and for products transferring to Resolution Life will cost about A$85 million, and stranded group office costs will also deliver another A$40 million cost after tax.
All that is before the financial impact of any recommendations that come out of the royal commission – Commissioner Kenneth Hayne’s final report is due early next month.
AMP will report its actual annual results on Februrary 14.