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Questions remain as AMP heads for home

AMP is effectively packing its bags and going home, leaving many questioning what it means for UK investors and what will happen to the remnants of the company.

AMP plans to demerge its business by the end of the year along geographical lines, creating an Australian company to carry on the AMP name and a UK arm picking up the Henderson brand.

The Henderson brand will initially consist of fund firm Henderson Global Investors, IFA Towry Law, fund supermarket Ample and life businesses, London Life, NPI and Pearl. But AMP has confirmed that it intends to test the market to see if it can sell NPI and Ample.

At the same time, it plans to move out of equities in its UK investment portfolios supporting with-profits funds in favour of lower-risk options to “protect the long-term interests of both policyholders and shareholders.”

Policyholders are believed to have been getting letters in the last few days, outlining the changes.

There is no word yet on whether the two UK businesses, UK life and contemporary financial services, might be rolled back into one.

Some in the industry say AMP has misread the market while others believe its problems are nothing but the result of “unfortunate timing”, leaving it in the same position as other similar companies.

What is certain is that AMP&#39s withdrawal will have far-reaching effects as it has five million customers in the UK and with-profits fund values at the end of 2001 of £8.6bn for NPI and £11.6bn for Pearl.

But its problems are evident. According to the 2002 annual report, UK profits dropped by 26 per cent and sales fell by 21 per cent.

Cazalet Financial Consulting principal Ned Cazalet says AMP has tried the weather in the UK and does not like it and it is flying Qantas home.

He says the underlying business is not much worse than any other company in the UK and AMP&#39s entry into the UK market made sense in terms of the good demographics – a big population which is getting older and wealthier.

But falling bond yields, the stockmarket drop and “regulation strangulation”, including the 1 per cent world and stakeholder pensions being unprofitable, have given AMP a rough ride. Cazalet says: “Every damn thing that could have gone wrong has gone wrong.”

He believes the demerger is fuelled by the need to regain a focus on that part of the business which is doing well – the Australian side – and says the shareholders, which are predominantly Australian, have been wondering what is going on in the UK and why it is all bad news that they have been getting.

He says AMP would not want to sell Henderson at this point as the demerger will put a value on it without shareholders having to take cash now, meaning that it can wait for share prices to go up.

He also sees AMP engaging in some sort of buyback to try and get Henderson owned predominantly by institutional investors and forecasts that Towry Law will continue on as before but may find it has an expanded role servicing the top end of the closed Pearl and London Life funds.

A Towry Law spokesman says it is very much business as usual for the IFA, which is a “pretty strong stand-alone business”.

He says: “There certainly is potential for synergy with Henderson&#39s new UK business. It is very difficult to give very much more information than that. It will have far-reaching implications right across the group.”

Hargreaves Lansdown says the “de-risking” of AMP&#39s with-profits funds means the equ-ity exposure on the NPI with-profit funds will be largely eliminated and the equity exposure on the Pearl fund taken to very low levels.

It has serious concerns over whether investors who bought into these with-profits funds will be happy to find themselves investing in what it says are now effectively fixed-interest/property funds.

Head of pensions research Tom McPhail says the move brings the whole with-profits concept into question and it will be looking carefully at whether its clients should retain such policies with NPI and Pearl.

He says: “We are taking the view that in terms of investment security, this is as big a story as Equitable Life, not in terms of solvency but in effect on investors. NPI, Pearl and London Life wrote a lot of business.

“Investors are still going to get their guaranteed returns but I do not think they are going to get much beyond that. We will be actively discussing with our clients, particularly group sales, whether it is appropriate to maintain these policies.”

Chartwell chief executive Craig Wetton says AMP is going home, leaving behind the part of the business it wants rid of, if not in the short term, then as quickly as possible.

He says: “It is fairly cleverly packaged using the Henderson name, which is the jewel in the crown. Under this structure, any potential bidders for Henderson will have to take the less attractive parts as well – the UK life side.”

On the idea of a third party coming in and buying Henderson as a whole, Wetton is not so sure, saying that a buyer would need to be very brave and have deep pockets to acquire not just one life company but three, including London Life, which has been “dead in the water for some time”.

He believes the demerger will not necessarily drag Henderson down as it is auton-omous and it is in AMP&#39s interests to keep it strong.

The IFA says its with-profits investors are the ones who expressed most concern at the move.

He says: “It is too early to cut and run. But for those people looking for a true with-profits fund, there is no potential with these companies based on the current strategy.”

Syndaxi Financial Planning principal Robert Reid says AMP did not understand the market as well as it thought and he is critical of AMP&#39s corporate PR and how the recent announcement was made.

He says his clients are generally confused, with one wanting to take the benefits of his policy now just to get out. He believes putting NPI on the market may create a hiatus in its pension business as people will not have the confidence to put their money in there.

Reid says: “The corporate PR has been pretty awful, to be honest. It is more concerned about the effect that the news will have on the Stock Exchange and investors while somewhere down the track is some poor old chap with a pension wondering what is going on.”

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