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AMP shares were muted yesterday despite a sharp rise in UK life stocks, as
analysts remained sceptical that AMP could avoid further capital problems in
its struggling UK operations.
AMP rose 1c to $9.20, even though the UK sharemarket's life insurance index
soared 7 per cent on Monday night, led by Friends Provident and Aviva.
The sector was buoyed by a move by the UK industry regulator to ease the
pressure on life insurers to meet strict regulatory solvency levels and sell
shares into falling equity markets.
Insurers who were not meeting regulatory standards could discuss with the
Financial Services Authority (FSA) ways to improve solvency, including the
closure of some life funds to new business, raising shareholder capital and
selling businesses.
Given AMP had been undertaking these measures since June last year because
its Pearl ``with-profits" fund was not meeting these standards, the FSA's
announcement implies that it had forced AMP to undertake many of these measures,
one analyst said.
UBS Warburg's Frank Costigan said AMP's capital position in its UK life
subsidiaries remained finely balanced, despite the injection of #1.5 billion
($2.8 billion) in capital in the past year.
Warburg has lowered its valuation on AMP from $10.70 to $10, but cited key
risks as continued weak sharemarkets, falling sales and pressure on margins.
Another analyst even raised the possibility that AMP might need to raise new
capital via a raising, though this was played down by sources close to the
company.
Merrill Lynch said the FSA's new position lessened the risk of a capital
raising but ``if the FTSE does not recover in the medium term, we believe a
capital raising could be a possibility at some stage".
``AMP's fortunes remain tied to the FTSE almost like a margin loan," Merrill
said. ``If the FTSE recovers strongly, capital will be released. If the FTSE
continues to decline a deficit will form."
Merrill said the FTSE looked ``relatively inexpensive", trading on a
price/earnings ratio of 11 times compared to 14 times historically and a 4.2 per
cent dividend yield. ``However, the dividend yield of 4 per cent plus on a
prospective basis might be at risk as many of the large financials could be
forced to cut [dividend] payouts, including Lloyds TSB, Aviva, Prudential and
Abbey National, to restore balance sheets which have been decimated by weak
equity markets."
AMP expects to report an annual loss of $900 million later this month.
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