Australia‚Äôs largest wealth manager AMP Ltd said on Thursday it would sell its life insurance arm at a discount and revealed its funds were hemorrhaging cash as clients pulled out their money in response to revelations of systemic wrongdoing.
Investors wiped more than A$2 billion ($1.4 billion) off the market value of the once-venerable firm after it said it would offload its life insurance and wealth protection business to British Resolution Life for A$3.3 billion ‚Äď almost a fifth below book value.
The 170-year-old company also revealed a sharp rise in client withdrawals from its Australian wealth management division in the three months to September, having admitted at a government-backed inquiry to charging customers for advice they never received and misleading regulators.
Such withdrawals soared to about A$1.5 billion in the third quarter, from A$243 million in the second. The division had total assets under management of A$132.6 billion at the end of the quarter.
AMP shares tumbled 24 percent to A$2.50, a record low as investors worried about the insurance sale price and a possible pick-up in the pace of capital outflows. The stock has halved since the inquiry into the Australian finance sector began in February, exposing deep flaws in the firm‚Äôs governance.
‚ÄúWe continue to see ongoing risk to outflows, particularly ‚Ä¶ as contracts will continue to be put out to tender when existing terms expire,‚ÄĚ analysts at investment bank Macquarie said in a note to clients.
Having flagged business sales months ago, it said London-based Resolution Life would pay A$1.9 billion in cash for the life insurance business, with the balance to be received in equity in Resolution and a stake in the offloaded business.
Australian financial firms have been selling life insurance units to simplify, pre-empt any government-mandated break-up in response to evidence of sector-wide abuse of market power, and to avoid competition with larger entrants from Asia.
But AMP‚Äôs sale was among the cheapest of a life insurance business in Australia, by earnings multiple, in more than a decade, Macquarie said.
‚ÄúIt seems like a huge loss in value just from this transaction,‚ÄĚ JPMorgan analyst Siddharth Parameswaran said on an analyst call.
AMP said it also planned to list its New Zealand wealth management business in an Initial Public Offering.
Acting CEO Mike Wilkins said the wealth management division was losing business to cheaper competitors, and had been talking to major clients whose mandates were due for renewal as it attempts to rebuild its reputation and stem the outflows.
The company was ‚Äúre-shaping‚ÄĚ its financial adviser network to improve its level of professionalism and productivity, he added.
Even so, more client exits are on the cards after Anglican National Super said last week it would move its A$250 million pension fund elsewhere and Australia Post dropped AMP as its default manager.
The inquiry heard the company had charged thousands of customers for financial advice it never gave, then doctored a supposedly independent report to the corporate regulator about it, which could lead to criminal charges.
Seven senior officials, including the chairman and chief executive, have now left the firm and its business model of licensing external advisers to distribute products is under extreme pressure.
Incoming Chief Executive Francesco De Ferrari, hired from Credit Suisse, begins on Dec. 1 and the company reports annual results on Feb. 14.
($1 = 1.4124 Australian dollars) (Reporting by Tom Westbrook and Paulina Duran in Sydney, and Rushil Dutta and Nikhil Kurian Nainan in Bengaluru; editing by Stephen Coates)