January 25, 2019 / 8:24 AM / 6 months ago

Australia's AMP slashes dividend as shareholders pay for missteps

SYDNEY (Reuters) - Australia’s largest wealth manager, AMP Ltd, said on Friday it would slash its dividend by almost three-quarters and post a meager annual profit in 2018 as shareholders paid a heavy price for misconduct exposed by a public inquiry last year.

FILE PHOTO: The head office building of AMP Ltd, Australia's biggest retail wealth manager, is seen in central Sydney, Australia, October 28, 2016. REUTERS/David Gray/File Photo

The dividend cut all but removes one of the last attractions for investors who have stuck by the 170-year-old company through its toughest period since listing two decades ago.

AMP has been rocked by revelations it billed dead customers, charged thousands of people for financial advice they never received, and conspired at board level to deceive regulators about such practices.

The company said in a statement it expected net profit to fall 97 percent to A$30 million and anticipates cutting the annual divided from 14.5 Australian cents a year ago to 4.5 cents.

Underlying profit for 2018 would fall around a third to about A$680 million ($482 million), well below analyst expectations of A$747 million.

Shares in AMP dropped as much as 10 percent in early trade, nearing the record low the stock plumbed in December, before paring losses to trade 6 percent lower at lunch, while the market rose 0.4 percent.

“The dividend was never going to be maintained ... shareholders are feeling the pain there,” said Hugh Dive, Chief Investment Officer at Atlas Funds Management, which sold out of AMP last year. “From our point of view it is uninvestable.”

The government-ordered inquiry shook public trust across the financial sector, wiping billions from the market capitalizations of banks and wealth managers. AMP was particularly hard-hit, its market value having halved to A$6.9 billion in the past 12 months.

To stem the damage, AMP’s CEO and chairwoman resigned and the firm has embarked on a restructure including the sale of its life insurance unit at a hefty discount to London-based Resolution Life in October.

AMP expects that business to report a A$105 million operating loss for the six months to end December and to book an extra A$200 million in provisions for customer remediation in the 2018 year.

DIVIDEND DROUGHT

Before its cut, AMP was one of the highest-yielding Australian large-cap companies, along with the big four banks, and was sought after by older investors seeking steady income and tax credits that come with the dividends.

But with the banks’ profitability squeezed by regulators in the wake of the inquiry, and Australia’s opposition promising to unwind parts of the tax credit system if it wins an election as opinion polls suggest in May, yield plays are under pressure.

Telecom Telstra Corp Ltd, for example, was dumped by dividend chasers when it cut payouts for the first time in 20 years in 2017.

“If you’re in retirement, you’re looking for yield more than growth,” said James McGlew, head of institutional sales at Argonaut Securities.

“Are they going to be able to pay a dividend this time next year, at all? As a fund manager, their greatest single asset has been their reputation, and that’s been belted,” he said of AMP.

Reporting by Tom Westbrook and Byron Kaye in Sydney; additional reporting by Ambar Warrick in Bengaluru; Editing by Stephen Coates

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