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The Sydney Morning Herald

AMP clean-up costs $1.2bn

Author: Anthony Hughes
Date: 19/11/2002
Words: 583
          Publication: Sydney Morning Herald
Section: Business
Page: 21
AMP will incur heavy full-year losses after being forced to take a $1.2 billion writedown, mostly on businesses purchased in an international spending spree by the previous management during the past five years.

New chief executive Andrew Mohl yesterday said the value of the assets was ``unlikely to recover for some time", though the writedowns also reflect decisions made last week to better manage the UK operations and streamline non-core operations such as new offshore ventures.

Of the roughly $1.2 billion to be subtracted from AMP's total capital base, $850 million relates to the troubled UK Financial Services division, $600 million of which comprises National Provident Institution and most of which is goodwill.

The writedowns do not include restructuring costs, including about $50 million expected to be booked this year to cover redundancies in the Australian financial services and the unravelling banking operations.

Given some analysts were predicting a bottom line profit for 2002 of about $700 million, AMP is now staring at a loss of about $500 million for the year. However, Mr Mohl said that ordinary dividends and distributions on the new reset preferred securities would not be affected. Investors shrugged off the losses, with AMP shares falling only 2c to $12.48 yesterday.

``It's not a big deal for the valuation but it's pretty clear that Mr Mohl does not want any bad news to be hijacking the strategy day [for analysts] in a couple of weeks," one analyst said.

The writedowns confirm market suspicions that AMP paid too much in 1998 when then managing director, George Trumbull, and his then chief financial officer and recently departed successor, Paul Batchelor, agreed to pay $3.6 billion, including more than $1billion in goodwill, for NPI. Pearl has been most commonly cited as the source of AMP's capital problems in the UK, but most of the goodwill in the UK financial services division relates to NPI.

The $350 million balance of the writedowns relate to former AMP International businesses, but AMP did not specify to which businesses they related.

However, given AMP's decision to dump some of its Asian operations, they most likely to relate to the cost of exiting some of these emerging businesses, which have added enormously to the costs of running the company.

AMP Banking and the half share of Virgin Money make up the bulk of assets comprising this division.

AMP has yet to indicate its intentions for the Virgin Money division, although partner Sir Richard Branson has claimed he will buy it for a profit to AMP if the insurer wants out.

While it is unclear why the writedowns were not referred to last week, AMP said it had in the past few days ``accelerated" its review of the carrying value of its businesses.

Despite the writedowns in the UK, AMP is expected to have $6.6 billion in total capital invested in the UK at December 31, up from $6.1 billion as at June 30. This probably reflects AMP's previously announced plans to invest #500 million ($1.4 billion) in the UK, largely by reallocating capital from Australia. But the remaining book value attributed to the UK business runs counter to the view of some investors during the stock's nadir that this division was effectively worthless.

AMP's predicament as the only UK life insurer to have breached the local regulator's minimum capital requirements does at least look likely to change. Rival Equitable Life admitted on Friday night it might not meet the requirements.

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