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
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