AMP Limited has reported a 96.7 per cent year-on-year decline in its statutory net profit in the 2018 calendar year, from $848 million to just $28 million, as it continues damage control in the aftermath of the financial services royal commission.
The profit was weakened by the provision of $430 million post-tax for advice remediation plus $39 million in direct costs after the firm was exposed by the royal commission for charging customers fees without providing financial advice and providing false information to regulators.
An additional $20 million was spent on non-advice related customer remediation.
Legal and other expenses incurred in preparation for and in response to the royal commission amounted to $32 million, while costs associated with AMP’s portfolio review totaled $48 million (double the $24 million reported in 2017).
Further, $40 million was associated with the implementation of significant regulatory and compliance changes, AMP reported.
The wealth giant maintains its commitment to investing $35 million post-tax annually to upgrading its risk management and control systems over the next two years.
AMP had last year admitted that due to the “heightened level of regulatory and community expectations on financial services companies in Australia”, it is looking to “increase its capabilities in risk management” and develop a more “comprehensive enterprise-wide governance risk and compliance reporting system”.
AMP chief executive Francesco De Ferrari acknowledged that 2018 has been “challenging” for the wealth firm.
“The royal commission has been a confronting but valuable experience for the financial services industry and has served as a catalyst for change at AMP,” he said in a disclosure to the Australian Securities Exchange.
“We have undertaken board and leadership renewal, accelerated client remediation, and sharpened our focus on delivering better value to customers including reducing fees on our MySuper products.”
The wealth giant also showed support for some of Commissioner Hayne’s final recommendations, including the extension of the Banking Executive Accountability Regime (BEAR) to all financial services entities regulated by the Australian Prudential Regulation Authority (APRA), saying that doing so would be “appropriate to improve customer outcomes and consumer confidence in the financial services industry”.
The firm reported that it is on track to being compliant with the regime’s accountability obligations ahead of the 1 July 2019 deadline.
AMP additionally supports “in principle” the Treasury Laws Amendment (Design and Distribution Obligations and Product Intervention Powers) Bill 2018, which would require product issuers to ensure that products are targeted and offered to the right customers. However, the wealth giant has concerns around implementation.
Mortgages on the rise
The wealth firm reported a 34.7 per cent decline in total operating earnings in 2018, from $1.07 billion to $728 million, which it said was partly driven by the 7.2 per cent decline in earnings reported for AMP’s wealth management business ($363 million).
However, the firm’s investment management and banking divisions posted positive growth in earnings in 2018, with AMP Capital’s earnings rising by 7.1 per cent to $167 million and AMP Bank’s earnings increasing by 5.7 per cent to $148 million.
The bank’s results were attributed to reduction in deposit costs, as well as growth in residential mortgages. AMP’s residential mortgage book grew 3.1 per cent from $18.9 billion in 2017 to $19.5 billion in 2018.
The firm claimed mortgage growth was affected during second half of the 2018 financial year by “competition in the subdued housing market, regulatory limits, and conservative liquidity management”.
AMP had last year noted that its investment property and interest-only lending segments were constrained in response to regulatory requirements, such as APRA’s 10 per cent benchmark on investor loan growth and 30 per cent cap on interest-only loan growth, both of which were lifted under certain conditions.
The wealth giant reiterated that competition was “particularly apparent” in the owner-occupied principal and interest market.
According to its investor report, AMP Bank’s average loan-to-value ratio for mortgages decreased by 1 percentage point to 66 per cent 2018, while arrears (90 days and over) increased by 0.11 of a percentage point year-on-year to 0.47 of a percentage point.
[Related: Bank thickens mortgage book by 20%]