AMP takeover: Should you buy, hold or sell your shares?
AMP is no longer an investment proposition, despite a possible takeover by Ares Management Corporation.
Recent sexual harassment allegations against senior executives and the fee-for-no-service scandal uncovered at the banking royal commission may have been the straw that broke the camel's back, but these are really the continuation of a troubled narrative beginning more than two decades ago.
It's been a fall from great height, and falls from great heights rarely end well.
The storied financial services company started life in 1849 as a mutual society providing not-for-profit life insurance.
Then it demutualised and listed in 1998, and for a time its future showed promise as the share price pushed past $40 before settling in the 20s.
AMP was in a dominant position, with its talons reaching into every corner of Australia's investment landscape.
"I remember as a young derivative salesman, AMP was the biggest player in the market, and it wasn't just derivatives, it was also stocks and bonds," says Michael McCarthy from CMC Markets.
But it all started to come undone as the financial services giant failed to deal with challenges that a changing financial environment brought. The Australian dollar was floated in 1984, there were tens of new entrants to the banking and investment space, and funds management was gaining traction.
"Since that time, the share price has told a very sad story about a once great company in decline," says McCarthy.
"A lot of commentators suggest the float caused all the problems, but the reality was that AMP was already under severe competitive threat, and coming to market as a company rather than remaining a mutual society was a decision they had to make to survive."
Conflict of interest lay at the heart of AMP's troubles. It was offering financial advice on its own products.
"AMP never dealt well with that conflict between the interests of their customers and the business, and because of that failure they're in the very sad state they're now in," says McCarthy.
Fanning those flames was a series of grabs for market shares that went sideways.
"There were some disastrous moves in the late 20th century and early 21st century - the acquisition of GIO, the acquisition of Pearl and other UK businesses; all of those ended up destroying capital," he says.
The banking royal commission saw AMP caught up in the fee-for-no-service scandal, leading to a net loss of $2.5 billion. Then this year, sexual harassment allegations were levelled by former employee Julia Szlakowski against AMP Capital boss Boe Pahari.
That brings us to the current sorry state of AMP and the possible takeover by US-based alternative investment company Ares Management Corporation.
The takeover, if it happens, should be viewed by investors more as palliative, end-of-life care rather than a lifeline that could turn AMP's fortunes.
"I would guess that Ares will do what the AMP board should have been doing - looking at breaking up AMP and collecting the bits," says deputy head of research at InvestSMART, Gaurav Sodhi. "AMP has no role in the modern world where high-fee, low-performance products have been thoroughly disrupted."
McCarthy agrees we're nearing the end of the AMP story, and long-term investors best steer clear. If you already hold it, think very strongly about selling it.
With a share price currently at $1.64 and a takeover bid in the works, you could be forgiven for believing the stock is a bargain. But a doomed stock is no bargain, no matter what price it's trading at.
"It's not even if Ares is not the one who takes it over and breaks it up, it's inevitable that AMP will be broken up," says McCarthy. "A company that's had three chairs and three CEOs in 12 months is very clearly in trouble."
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