The AMP Limited (ASX: AMP) share price could flop today following the release of its 2018 full year financial report.
For context, AMP is the embattled diversified financial services company which has its primary operations in financial advice, including financial planning and wealth management. A big part of its business is licensing other planning groups to provide advice.
In 2018 and earlier this year, AMP was rocked by poor advice scandals, cover-ups and more. In the wake of this news, much of its senior leadership team departed.
AMP Results
Poor results were expected to be delivered today, so there’s a chance the results weren’t as bad as people had expected and the share price might do alright. However, that’s just speculation.
Here are the key results today:
- Profit fell $820 million year over year to just $28 million
- Excluding an enormous list of items, AMP’s underlying profit was $680 million, down from $1,040 million last year
- A final dividend of 4 cents per share was declared
- AMP’s Australian Wealth Management business experienced cash outflows of $3.968 billion, versus inflows of $931 million last year
- Among other things, AMP’s priorities for 2019 include asset sales, compensating clients for poor advice, increasing risk management and bolstering internal controls
AMP CEO, Francesco De Ferrari said, “2018 has been a challenging year for AMP. Our core businesses have delivered resilient results, with continued growth in AMP Capital and AMP Bank offsetting the headwinds faced in Australian wealth management.”
Looking under the hood, AMP’s Australian wealth management business reported a profit of $28 million, down from $363 million. In my opinion, for years AMP had been gouging unwitting customers with high fees — for all I know, it might still be doing so in some instances.
Following the Royal Commission investigations, the bank’s wealth management division suffered because it was all but forced to lower fees.
The bank’s media release stated: “The result was largely due to higher margin compression from the MySuper fee reduction, weaker investment markets and the transition of clients to lower-cost, contemporary products such as MyNorth.”
The huge amount of client money being pulled from AMP’s network ($3.9 billion on a net basis), was a result of the Royal Commission, reputational damage and advisers’ focus on customer retention rather than new business, the bank said.
One positive I found, aside from the compensation and promises for change, AMP plans to return much of the capital from the settlement with Resolution Life.
My Take
As I wrote recently, “Why AMP Shares Are NOT On My 2019 Buy List“, AMP shares could be dirt cheap at today’s prices, especially if it can return excess cash to shareholders following its asset sales.
However, it is one company I would rather not be associated with as an investor. Even if I was bullish I’d wait on the sidelines for a while given that a lot of water needs to pass under the bridge to compensate clients and then to make it a well-run bank.
I think there are many other better opportunities for investors available on the ASX and abroad.
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