Disgraced wealth manager AMP has endured one of its worst days in its 169-year history, with its share price haemorrhaging as investors desert it in droves in the wake of the banking royal commission.
The once-proud insurer, which opened its doors in 1849, lost nearly a quarter of the value of its stock on Thursday – plummeting 24.47% – after it revealed investors had shifted $1.5bn out of its wealth management business in the September quarter alone, and announced plans to sell its life insurance arm.
The torrid losses for AMP came amid a world-wide selloff on Thursday, with shares in the Asia Pacific plunging into bear market territory, wiping billions off the values of companies, after a rout in technology shares saw the largest daily decline on the Nasdaq in the United States since 2011.
Australia’s benchmark ASX 200 index suffered its fifth straight day of losses, closing down 164.9 points or 2.8%, ensuring all its gains from the past 12 months were erased.
Concerns about rising US borrowing costs and a slackening in global growth have fueled the selloff but Nick Twidale, chief operating officer for Rakuten Securities in Australia, said the situation could get worse before it gets better.
“Until we see something tangible to change investor sentiment then I think we’ve got more downside coming for global stock markets, growth expectations and risk assets,” he said
But AMP’s continuing annus horribilis took the spotlight, sparked by an admission of how damaging the banking royal commission has been for its reputation.
It told the stock exchange its wealth management business saw net cash outflows of $1.5bn between July and September, up from $243m in the corresponding period last year, due to weaker inflows and elevated levels of outflows in part “following AMP’s appearances at the royal commission”.
AMP executives endured a series of humiliations at the commission hearings this year, including revelations that AMP charged fees for no service and levied fees on customers who had already died. It also saw the departure of chair Catherine Brenner, chief executive Craig Meller and three directors.
Acting chief executive Mike Wilkins said it appeared clients were moving their money into industry super funds.
By 4pm the shares were changing hands for $2.50, a fall of 24.47%, which is huge for an $8bn company.
AMP also said it had decided to divest its Australian and New Zealand wealth protection and mature businesses, via a sale to Resolution Life, for total proceeds of $3.3bn.
It also intended to divest its New Zealand wealth management and advice businesses via initial public offering (IPO) in 2019, subject to market conditions and regulatory approval.
It said the exit from Australian and New Zealand wealth protection would “significantly simplify” AMP and allow it to concentrate on its higher growth businesses of wealth management, AMP Capital and AMP Bank.
The horrors on the stock market came as Fitch ratings agency affirmed Australia’s triple A credit rating with a “stable” outlook.
The agency said Australia’s rating was underpinned by an effective policymaking framework that had supported 27 consecutive years of GDP growth, and was supported by the federal government’s credible commitment to fiscal consolidation.
Wayne Byres, the chairman of the Australian Prudential Regulation Authority (Apra), appeared before a senate estimates hearing in Canberra.
He told senators that Australia’s financial system was “fundamentally sound”, with risk-based capital ratios of major financial institutions at their highest level in 20 years.
However, he said the banking royal commission’s criticism of Apra’s regulatory approach had forced Apra to think deeply, and it was now reviewing its practices.
“The royal commission noted that we’ve not utilised court-based sanctions,” Byres said.
“As a supervision-led agency our priorities have traditionally been prevention, rectification, and then sanction. [But] … we are re-examining our enforcement philosophy, our governance structure for enforcement decisions, and our resourcing for enforcement activity and whether they can be improved,” he said.
