August 7, 2018 / 10:04 PM / a year ago

UPDATE 2-Australia's AMP books worst profit since 2003 as inquiry hits

* AMP H1 net profit A$115 mln vs A$445 mln previous year

* Result includes one-off costs to remediate customers

* Inquiry is encouraging customers to withdraw funds: CEO (Recasts, adds shares, analyst, CEO quotes)

By Byron Kaye

SYDNEY, Aug 8 (Reuters) - Top Australian wealth manager AMP Ltd posted its worst first-half net profit in 15 years on Wednesday as it set aside cash to compensate customers it sold bad advice, and said that people were still withdrawing money amid a misconduct inquiry.

The 74 percent slump in interim profit was expected but the company’s admission that customers were pulling funds during the so-called Royal Commission demonstrates the immediate and unpredictable effects the powerful inquiry is having as it airs allegations of industrywide malfeasance.

AMP has been the worst hit, losing its chairwoman, CEO, several directors and nearly $4 billion of market capitalisation following accusations of board-level deception about charging customers fees for inappropriate service or no service at all.

“We saw a lift in withdrawals towards the end of the second quarter and we think that that was related to the Royal Commission,” said acting CEO Mike Wilkins, referring to the company’s core wealth management business.

“That’s now eased, and we’re monitoring the activity in what’s happening through our call centres.”

Net outflows for AMP wealth management, by far its biggest earner, totalled A$873 million ($648.6 million) for the six months to June 30, although the 170-year-old company did not say how much of that was linked to the inquiry.

Underlying profit for the unit still grew 5.7 percent, the company said, due to cost cutting.

The biggest drag on half-yearly net profit was a host of one-off costs and impairment charges as the company reviews its financial advice over the past decade, improves its compliance systems and compensates wronged customers.

Including those costs, which will total A$530 million over several years, net profit for the half came in at A$115 million, from A$445 million a year earlier, and its lowest first-half profit since 2003.

Excluding those one-off costs, underlying profit fell 7.1 percent A$495 million, in line with its guidance.

AMP shares were up as much as 3 percent in morning trading, while the broader market was slightly higher. But the stock is still down a third since Royal Commission hearings began in February.

“The big question of a lot of people is: this isn’t the end,” said Hugh Dive, chief investment officer at Atlas Funds Management which sold its AMP shares during the Royal Commission.

“The remediation will take a lot longer than people expect. I wouldn’t feel confident buying the stock now.”

AMP’s income protection unit saw an almost total wipeout of profit in the half, to A$1 million from A$52 million, as it made higher than usual payouts. Wilkins said the company is talking to potential buyers for the unit, without elaborating.

$1 = 1.3459 Australian dollars Reporting by Byron Kaye in SYDNEY and Aditya Soni in Bengaluru Editing by Tom Brown, Amrutha Gayathri

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