Economic headwinds hamper AMP’s banking business

Uncertain economic times have dampened the performance of AMP’s banking division and curbed the growth of its wealth management and superannuation arms, according to chief executive of the financial services group Alexis George.

Speaking after releasing the group’s 2023 full-year result, George said AMP and its customers were battling through tough economic conditions.

AMP chief executive Alexis George.
AMP chief executive Alexis George.Credit: Kathleen Adele

“Clearly there’s been higher inflation than most people have experienced for a decade, and that certainly impacted the customers – as have the subsequent interest rate rises that have occurred since then,” she said.

George said when it came to banking, particularly the cost of funding deposits, there had been support for the sector from the government and the Reserve Bank of Australia which will end during the first half of 2024, meaning AMP’s bank was now back in the environment of gathering deposits.

“I always get asked this question: are we going to go into recession? But I think for many people they probably [already] feel like it’s a recession, especially those doing it a bit tough at the moment.”

The impact of the broader economy was evident in AMP’s still-resilient results for 2023 as its net profit declined 32 per cent to $265 million due to one-off costs, while revenue jumped 27 per cent to $2.98 billion.

Underlying profit was up 6.5 per cent to $196 million, thanks to the $245 million that flowed into the company’s coffers from the sale of two of its businesses, AMP Capital and SuperConcepts.

AMP’s second half was clearly weaker than its first half, with the figures from its fourth quarter – particularly withdrawals from its superannuation and banking business –revealing how the weaker economy was dragging on its results.

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Looking to the 2024 financial year, George pointed to some encouraging economic trends, with inflation abating and the expectations of rate cuts in the second half of the year.

Despite the dour parts of its results, the group’s net profit and its 2c dividend for the second half topped market expectations, according to analysts at UBS. The dividend is partially franked and will be payable on March 4.

The group also said it will return a further $295 million to shareholders via an extended buyback and $55 million via its expected future dividends to take the total capital returned to shareholders over the past two years to $1.1 billion.

AMP chair Debra Hazelton announced her retirement, and she will be replaced by AMP director Mike Hirst.

Shareholders responded positively to the result, with AMP’s shares lifting 8.9 per cent to $1.06.

AMP’s banking division recorded compression on its net interest margins as its loan book contracted amid fierce competition from its larger rivals and higher costs.

The impact of the broader economy was evident in AMP’s still-resilient results for 2023.
The impact of the broader economy was evident in AMP’s still-resilient results for 2023.Credit: Peter Rae

During a conference call with analysts following the result, MST Marquee analyst Lafitani Sotiriou challenged George over why AMP was staying in banking, particularly as the sector became more difficult and the costs of the business increased.

“It is pretty clear when you’re returning half, less than half of what others are delivering, we don’t seem to be getting an answer as to why you guys should be staying in banking,” Sotiriou said.

George defended the group’s commitment to the division, pointing to a suite of new products announced last year to improve earnings, including digital transaction accounts for small businesses.

“I believe that the strategy we put forward in late last November will help us diversify the funding, diversify the customer base and improve the enterprise value,” she said.

“Now of course, there is a sense of urgency, we need to continue to look at what the market dynamics are. We need to continue to refresh our financials all of which we are doing. And I’m sure we’ll have more discussions with you about that.”

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