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AMP faces shareholder class action threat

Emma Rapaport  |  26 Apr 2018Text size  Decrease  Increase  |  
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AMP faces a wave of shareholder class action lawsuits as the banking inquiry unearths a string of misconduct claims within its wealth arm.

Local firms Shine Lawyers and Slater and Gordon, along with global firm Quinn Emanuel (QE), have each announced shareholder class action investigations over misleading statements made by AMP to the corporate regulator Australian Securities & Investments Commission (ASIC).

“The revelations of AMP’s misconduct are especially upsetting given the people who were hurt - the ordinary mums and dads who as shareholders gave AMP one of Australia's largest shareholder registers, who have now lost their savings due to its dishonesty,” QE partners Damian Scattini says.

‘Unprecedented disaster’

Morningstar senior banking analyst David Ellis says the evidence about AMP presented to the commission is disastrous for the reputation of the 169-year-old company, and risks damaging its products and services.

“Despite AMP's strong market positions in a long-term growth industry, large distribution base, offshore growth options, and a strong track record in cost control the very damaging royal commission revelations have been an unprecedented disaster,” Ellis says.

“AMP's heritage brand has been trashed and the immediate future is dark to say the least. Execution is always key to long-term success, and so far we think the jury is out on whether current management can deliver on its vision.”

Morningstar equity analyst Chanaka Gunasekera adds AMP will likely see increased compliance costs, slowing of new client growth and funds under management, and experience difficulty attracting new advisers.

Slater and Gordon, which has partnered with global litigation funder Therium, said its investigation would consider potential allegations that AMP breached its continuous disclosure obligations between 28 May 2015 and 13 April 2018, which caused losses for investors who acquired shares during this period.

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QE has secured the backing of litigation funder Burford Capital, and will attempt to recover losses for shareholders who acquired shares between 24 May 2013 and 16 April 2018.

AMP bore the full force of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry last week, with the wealth manager admitting to a business practice of charging thousands of customers for advice services they didn’t receive.

The commission heard AMP made numerous false and misleading statements to ASIC designed to present the problem of charging ongoing service fees as an administrative overnight or error, rather than as a deliberate policy.

Under questioning, AMP head of advice Anthony “Jack” Regan admitted he had lost count of the number of times the company misled the regulator.

Since these revelations were made public during the royal commission, more than a billion dollars has been wiped from AMP's market cap. On Tuesday its share price fell to a five-year low of $4.06.

AMP Limited 1-year price chart


chart
Source: Morningstar

“[These revelations have] left thousands of investors reeling,” says Slater and Gordon head of class actions Ben Hardwick.

“Not only did senior executives admit AMP had been charging significant fees for financial advice services it did not provide, but they also admitted the bank tried to conceal these practices by repeatedly telling ASIC they were the result of an administrative error.

“We allege that this conduct was both unlawful and unethical and reflected serious compliance problems within AMP, and the market had a right to be informed about what they were buying into.”

Heads roll at AMP

On Friday, AMP chief executive Craig Meller became the first executive to fall, with the company confirming his immediate departure. Non-executive director Mike Wilkins, a former chief executive of insurance company IAG, will be chief executive until a successor is appointed.

AMP chairman Catherine Brenner’s future is also under a cloud as the Australian Shareholders Association (ASA) calls for her resignation.

“Chairman Catherine Brenner's position is untenable and she should either resign immediately or step down until such time as the independent investigation has taken place,” the ASA said in a statement.

The ASA has announced its intention to vote down AMP’s remuneration report at its annual general meeting on May 10--an action which, if backed by other major shareholders, could result in a “first strike” against the board. The ASA also plans to oppose the re-election of non-executive directors Holly Kramer and Vanessa Wallace.

However, Ellis notes that AMP is well placed to take advantage of structural advantages of a compulsory superannuation system, generous tax incentives, and an ageing, increasingly wealthy population. The superannuation industry is expected to double in size by 2026.

Morningstar’s analyst rating for AMP Limited is under review with updated assessments due early next week. The company’s stewardship rating is likely to be downgraded.

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Emma Rapaport is a Morningstar reporter, based in Sydney

© 2018 Morningstar, Inc. All rights reserved. Neither Morningstar, its affiliates, nor the content providers guarantee the data or content contained herein to be accurate, complete or timely nor will they have any liability for its use or distribution. This information is to be used for personal, non-commercial purposes only. No reproduction is permitted without the prior written consent of Morningstar. Any general advice or 'class service' have been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), or its Authorised Representatives, and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. Please refer to our Financial Services Guide (FSG) for more information at www.morningstar.com.au/s/fsg.pdf. Our publications, ratings and products should be viewed as an additional investment resource, not as your sole source of information. Past performance does not necessarily indicate a financial product's future performance. To obtain advice tailored to your situation, contact a licensed financial adviser. Some material is copyright and published under licence from ASX Operations Pty Ltd ACN 004 523 782 ("ASXO"). The article is current as at date of publication.

 

 

is the editorial manager for Morningstar Australia. Connect with Emma on Twitter @rap_reports. You can email Morningstar's editorial team editorialAU[at]morningstar[dot]com

© 2021 Morningstar, Inc. All rights reserved. Neither Morningstar, its affiliates, nor the content providers guarantee the data or content contained herein to be accurate, complete or timely nor will they have any liability for its use or distribution. This information is to be used for personal, non-commercial purposes only. No reproduction is permitted without the prior written consent of Morningstar. Any general advice or 'regulated financial advice' under New Zealand law has been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), or its Authorised Representatives, and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. For more information, refer to our Financial Services Guide (AU) and Financial Advice Provider Disclosure Statement (NZ). Our publications, ratings and products should be viewed as an additional investment resource, not as your sole source of information. Morningstar’s full research reports are the source of any Morningstar Ratings and are available from Morningstar or your adviser. Past performance does not necessarily indicate a financial product's future performance. To obtain advice tailored to your situation, contact a licensed financial adviser. Some material is copyright and published under licence from ASX Operations Pty Ltd ACN 004 523 782. The article is current as at date of publication.

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