Price tumbles as AMP floats into stormy seas

By PAM GRAHAM

School secretary Judy Eady didn't muck around. When AMP gave her shares and listed on the Stock Exchange in 1998, she sold.

It was a good call.

The decision set up the family finances for the years ahead.

"We thought, they cost us nothing and we had three kids and a mortgage. I got $26 a share for mine, which I thought was pretty cool."

About 290,000 New Zealanders with AMP policies faced the same choice when they got shares as part of the process of demutualising the financial services icon.

Like Eady, many sold their shares and enjoyed the windfall. The extra cash changed some people's lives and added to economic growth that year, lifting some rural areas where farmers had done a lot of business with the man from AMP.

But at least 92,000 policy holders hung on to the shares, accepting the predictions that an investment in AMP was a rock-solid, good-as-gold, once-in-a-lifetime opportunity.

Unfortunately for them, the frenzied excitement when the company listed - in Australia, the shares surged to A$45.00 and averaged A$25.66 in the first 10 minutes of trading, making AMP briefly Australia's largest listed company - did not last.

Eady hasn't followed the stock since selling. "They did something good for us and that was it."

But those who kept their shares have watched them steadily sink, especially in the past year.

They hit a record low of $12.50 in New Zealand on Wednesday, and closed yesterday at $14.20.

The impossible had happened. The giant had stumbled, not once but several times. "The key," said one Sydney banker, "was the purchase of GIO Holdings."

AMP bought rival GIO Australia Holdings in 1998 in a hostile takeover which meant it could not check the books first.

It was a billion-dollar mistake which cost AMP dearly.

Amid the fallout, chief executive George Trumbull left with a A$13.2 million payout and Paul Batchelor, the chief financial officer at the time, took over.

The now-defensive AMP struggled with its relationship with shareholders and the media, earning rebukes from regulators for poor disclosure.

Batchelor, who was paid A$3.34 million last year - a cut from the A$4.2 million he got in 2000 - did not shine in the job.

He badly miscued last month by seeking an extension to his share options when the poor relationship between executive pay and performance was engrossing the media.

The final blow, which led to his resignation, came this week when AMP sparked outrage by belatedly disclosing the extent of capital requirements to its UK life insurance businesses in a prospectus.

People who know 52-year-old Batchelor say he is an accountant who is awkward and does not connect well with audiences.

His interim successor, Andrew Mohl, is a complete contrast - a man who takes business but not himself seriously. Mohl, 46, is running the company while it searches for a new chief executive and is a contender for the job permanently.

He earned brownie points by heading straight for the UK, where the Pearl Assurance business AMP owned before the company demutalised requires more capital to satisfy regulators.

The life insurance policies it sells have guaranteed returns, and regulators want more money put aside for them.

This is a problem for many insurers that invest capital in the UK stock market, which has declined 26 per cent this year to a seven-year low.

"I think it's been very misunderstood," one banker said.

"The money isn't lost. It's to support policies which may not be drawn on for years. And if the market recovers they will need less capital,"

So AMP has been caught by a problem common to other insurers as well as scoring poorly on strategy, communication and leadership choices.

The issue now is whether the insurer and fund manager that promised to become a predator has become prey.

A provision that stops anyone buying more than 5 per cent of the company expires next June. That means AMP has to get it right now.

Brandon Phillips, spokesman for National Australia Bank, declined to say if the bank has been kicking tyres again after being spurned by AMP in 1999 when it was prepared to pay A$21 a share.

Australian investment bankers say valuing financial services businesses, particularly insurers, is difficult even for experts, and that rules out a hostile bid.

Put seven actuaries in a room and you will get seven different answers.

"The problem is AMP is like a fruit cake with lots of different ingredients. It's an awkward package that's difficult to value," one mergers and acquisitions specialist said.

Not everyone wants the lot.

National Australia Bank bought the MLC fund management business from Lend Lease, which - unlike AMP - doesn't manufacture its own products.

ANZ has ruled itself out of the race for fund managers, and Westpac bought BT Financial Services last month.

Commonwealth Bank bought Colonial and may have antitrust problems if it has a tilt at AMP.

Foreigners have to get past the Foreign Investment Review Board.

If a bid is to be made, it may be soon, as AMP is working hard to connect with shareholders and boost its share price.

"AMP has a huge heritage. Our clients are concerned but relatively composed," said John Reuhman, director of NZIJ Stockbrokers.

John Sevior, head of Australian equities at Perpetual Investments in Sydney, said the Australian business was sound.

"What they have done is mis-managed their communications, and there has been some mismanagement of the business. You cannot get away with chopping and changing what you are telling the market."

AMP was still behaving like a mutual but the "guy stepping into Batchelor's shoes" is making all the right noises.

He said National Australia Bank had moved on and was very conservative, though the bank might make a move if the price was right.

Wayne Stechman, New Zealand equity manager at Tower Asset Management, says the fact that National Australia Bank has been interested before at a much higher price means it is reasonable to assume it would be still interested.

But if the market thought AMP was a takeover target immediately, the price would be higher.

AMP is now pumping out statements to the Stock Exchange almost daily.

As well as a new chief executive it is looking for a new chairman.

When present chairman Stan Wallis leaves six months after a new chief executive is appointed, there will not be a single member left from the 12-member board that recommended demutualisation in September 1997.

AMP is a different beast to HIH Insurance, which collapsed last year after paying too much for FAI Insurance and specialising in the higher risk workers compensation and public liability areas.

In August, AMP reported a 25 per cent fall in interim bottom-line profit. It predicted a little-changed annual operating profit of A$916 million.

Australia's largest fund manager and insurer needs to do more than wait for the United Kingdom market to rise.

A lot is at stake, a point that is well illustrated by a night ferry ride in Sydney.

As the ferry sweeps towards Circular Quay passengers see the Opera House, Harbour Bridge - and at least half a dozen neon AMP signs on top of tall towers.

That view, Australasian business, and the hopes of 92,000 New Zealand shareholders, will be very different in a year if AMP doesn't make the change in culture it promised in 1998.