Wednesday 28 November 2018 by FIIG Research General

Company updates – AMP confirmation of advice remediation provision

This week, AMP interim chief executive, Mike Wilkins suggested its fees-for-no-service issue might cost the bank up to AUD1.2bn

Some readers may have seen a report published in the Australian Financial Review yesterday relating to AMP. It was noted that AMP interim chief executive, Mike Wilkins had suggested its fees-for-no-service issue might cost the bank up to AUD1.2bn.  

Subsequent to this, AMP provided an update to the ASX prior to trading on the same day. AMP noted the figure referenced during the Royal Commission was an early estimate of the total costs associated with a review and remediation program, which was subsequently revised lower and disclosed to the market earlier in the year. This does not suggest further revisions in the total cost of remediation will not emerge, but suffice to say the development yesterday does not appear to be new information, in our view.   

Currently, the bonds are trading as if they were rated around three notches lower than the issue rating, and have been since launch. This leads us to believe much of the recent news was factored into the pricing of the bond when it launched two weeks ago. Indeed, a margin of +275 over bank bills is relatively high for the assigned credit rating on AMP’s issue, which is likely to largely reflect recent events surrounding AMP, including its announced sale of its life insurance business.  

This also leads us to believe that if the credit rating on AMP is lowered in the near term, the impact may already be factored into the current pricing on the notes. S&P has a negative outlook on AMP’s credit rating, which translates into a one-in-three chance the rating agency will lower the rating on AMP over the next two years. We do not expect S&P to make an announcement in relation to the credit rating on AMP until the group’s sale of its life insurance business is approved (or otherwise), which we do not expect until sometime in 2019 (likely mid-year).   

AMP’s confirmation announcement is available here on the ASX website.

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