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S&P Global downgrades AMP credit ratings

S&P Global downgrades AMP credit ratings

Jessica Yun
— 1 minute read

S&P has downgraded its credit rating for AMP’s life insurance arm as well as its banking arm, citing damage incurred from revelations of misconduct aired in the royal commission.

A statement from the credit ratings agency said that it had lowered its rating on AMP Life, reflecting “a deterioration in the creditworthiness of the entire AMP group” following the royal commission.

AMP Life has had its rating downgraded from ‘AA-‘ to ‘A+’ and further pressure on the company has been anticipated.

“We believe the AMP group’s creditworthiness has deteriorated due to a weakening in its competitive position and identified risk management deficiencies as a result of damaging disclosures to the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry,” the statement said.

In the latest round of hearings, which looked into superannuation, the royal commission heard that AMP Superannuation had a lengthy process where it was possible for its board not to be informed of a consistently underperforming fund for up to five years, which the financial services giant denied.

“Our negative outlook on AMP Ltd. and its insurance subsidiaries reflects our view that there is potential for further rating pressure related to the group’s capitalisation as a result of potential penalties, fines, legal action, or possible further required remediation action,” according to S&P Global Ratings.

The royal commission has wreaked “damage to [AMP’s] brand and reputation”, weakening its competitiveness as well as its earnings, according to the statement.

“Recently announced remediation actions costing the group in excess of $400 million in fiscal 2018 have undermined the group’s earnings and there are indications asset management flows have also suffered.”

AMP took a 75 per cent hit to its net profit in the first half of 2018, setting aside $290 million for advice remediation.

“In addition, the insurance risk business continues to underperform our expectations.”

The credit ratings agency also expressed doubt about the strength of AMP Life’s risk controls. While it acknowledged that AMP had announced improvements to its controls compliance systems, this would take time, the statement said.

However, S&P Global Ratings said AMP had a “strong business franchise and very strong capitalisation”, with AMP Life enjoying a “strong business profile and robust capital”.

“A return to a stable outlook is possible over the next one to two years and would reflect evidence that remediation efforts have improved risk management while the group maintains its robust capitalization and strong competitive position.”

Nonetheless, the credit ratings agency said it could further downgrade the rating of AMP group if its capital position weakened or its competitive position worsened, performing worse than peers.

Outlook on AMP Bank subsequently revised

S&P Global Ratings also released a separate statement which said its outlook for AMP Bank had also been revised from stable to negative due to the group’s weakened creditworthiness.

“The revision to negative outlook on AMP Bank reflects the potential downward rating pressure on the group credit profile.

“In our view, the bank's credit profile benefits from both explicit support, in the form of a guarantee from AGHL, and implicit support from the wider group if needed because we consider the bank to be a strategically important subsidiary of the group.”

Its outlook on AMP Bank could be either lowered or revised to stable again depending which way AMP group’s creditworthiness moved, the statement said.

“We expect to lower our rating on AMP Bank in the next two years if both of the following occur: we formed an opinion that the creditworthiness of the AMP group has weakened, and we downgrade [AMP Group Holdings Limited].”

“We would expect to revise the outlook to stable in the next two years in either of two scenarios: if, in our view, the pressures on the credit profile of the AMP group have eased, or; we revised the outlook on AGHL to stable.”

 

S&P Global downgrades AMP credit ratings
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