AMP shares continue to slide

By NZPA

Friday 20th September 2002

AMP's shares continued to plunge today, plumbing a new low of $13.40, down 70 cents, after shedding 90 cents yesterday.

The drop in the last two days has wiped over $1.5 billion off its market capitalisation.

AMP shares have slumped from over $27 in late June last year and from $22.63 at the start of this year.

The stock has been rocked this week after the Sydney-based fund manager announced its Pearl Assurance unit in Britain had failed to meet minimum regulatory capital requirements.

The group manages $A266 billion ($NZ311 billion) of funds, mostly in the Britain.

In June, it announced plans to fire 1500, more than a fifth, of its workers there to trim costs by $A100 million after the value of its assets were eroded by plunging stock markets.

Further capital initiatives were needed for Pearl to meet those requirements by year-end, AMP said in a prospectus to sell $A750 million ($NZ878 million) of preferred shares, issued on Wednesday.

It plans to sell 7.5 million preferred shares at $A100 each. It might sell a further 2.5 million shares, depending on demand.

The prospectus apparently indicated AMP's position in Britain was much worse than previously foreshadowed and created mistrust, said Robert Patterson, who manages $A1.5 billion as managing director of Argo Investments Ltd in Australia, and holds AMP stock.

As well as worries about Pearl, AMP stock has been knocked by the general market downturn which has savaged the investment returns of fund management companies.

A New Zealand analyst said AMP had become "completely and grossly over exposed" to equities.

AMP issued free shares to its members when it demutualised in 1998. They soared to a high of $27.10 at the end of June last year.

Early last month they fell to $14.86 on the back of concern about its capital investments in Britain and as part of a wider trend among insurance companies suffering at the hands of falling share markets.

AMP is heavily exposed to the fall of the British sharemarket through its funds management business AMP Henderson.

"They should have the expertise with all the capabilities and the wide range of products to not be hit around as hard by the equity market as they have been," one analyst said.

"But they have got completely and grossly over-exposed to the market conditions, to the point that they are now suffering as the market suffers.

"AMP has become too much of a sharemarket beast, which is not what it should be.

"Somewhere along the line it has made some serious miscalculations in terms of their business strategy."

The announcement that Pearl had not met its minimum capital requirement would put the brakes on AMP's expansion in Britain, which had been its single biggest growth market, the analyst said.

Pearl would not be able to afford to tap into the opportunities it would normally have pursued. Instead, it was faced with either raising new capital or selling assets.

A third negative weighing on the share price was that AMP Henderson was suffering a drop in funds under management. That would also affect fee income.

"They are all pretty big negatives."

While 290,000 New Zealanders received a total of 118 million shares after demutualisation, many are have sold out.

AMP transferred $A1 billion of capital to the Britain from Australia in June, and on August 22 chief executive Paul Batchelor said the British units would meet minimum capital requirements, even if the FTSE index fell several hundred points.

Since then, the benchmark has shed about 500 points.

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