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AMP investors still bullish on break-up despite offer - The Australian Financial Review
AMP's confirmation of the offer sent its languishing share price soaring, but shareholders maintain the company won't survive in its current form.
The offer came in response to a "portfolio review" initiated by AMP chairman Debra Hazelton in September after the shock departure of chairman David Murray over the company's handling of sexual harassment allegations against senior executives, revealed by the Financial Review. The review is being run by investment banks Credit Suisse and Goldman Sachs and may recommend a change in AMP's mix of assets, with a potential break-up of the company a possibility. It is understood that Ares' offer is for AMP in its entirety, including the problematic financial advice division tarred by the Hayne royal commission and its under-performing superannuation funds. Market sources said the US bidder was concerned about "value loss and leakage" were the sprawling wealth management group to be broken up. But existing institutional shareholders in AMP were sceptical that the prospective buyer would or should keep the company intact. "I would be astonished if a 'whole of company' transaction was Ares' intention," said Simon Mawhinney, chief investment officer of AMP's second largest shareholder, Allan Gray. "Do they really want to own a bank?" Mr Mawhinney, whose fund owns about 7 per cent of the wealth management giant, said AMP faced only two likely scenarios, whether the Ares bid was successful or not. It would either be sold off "piecemeal", with different assets going to different buyers, or bought whole and then dismembered subsequently. The third option of "AMP as we know it continuing" would only become feasible if no compelling bids were made, meaning it was now unlikely to occur, the investment manager speculated. Fellow AMP shareholder Hamish Carlisle of Merlon Capital Partners stood by his previous contention that a break-up of AMP is in investors' best interests, with a specific focus on safeguarding the company's most lucrative assets. Though Ares, a $252 billion investment house, would almost double its global assets under management if it subsumed the whole of AMP into its operations, Mr Carlisle suggested it was likely only really interested in the $58 billion managed by AMP Capital's unlisted infrastructure and property funds, which offer the widest margins within the AMP empire. The AMP Capital division was until recently led by Boe Pahari, the executive at the centre of the Financial Review's investigation of sexual harassment claims, which sparked a staff and shareholder backlash. He has since been demoted to his previous role as head of infrastructure equity. In August, Mr De Ferrari said the business was central to the company's future and turnaround efforts, outlining a bold if uncertain ambition to "build the best global private markets platform in the world". Mr Carlisle believes the best outcome would be for the attractive private markets operations of AMP Capital to be spun off and listed on the stock exchange as a separate business, with a separate board and corporate governance. "It would then be in a better position to attract staff and clients and be better valued by the market," he said. But Merlon is not opposed to the idea of an interested party purchasing AMP as a whole as long as it is at the right price. The reported offer price from Ares, officially unconfirmed by either party but reported to be in the realm of $5 billion, is not the right price in his opinion. AMP's valuation is complicated by the surplus capital the company has on hand, which Merlon estimates is worth about $1.5 billion if you include the so-called board buffer. Other sources have put the figure variously between $500 million and $2 billion. "Ares can apply AMPs surplus capital against whatever they pay," Mr Carlisle said. "So if they spend $5 billion they are really spending $3.5 billion and $3.5 billion for the actual operating assets of AMP seems low". Equity analyst Harry Dudley of Watermark Funds Management agreed the reported offer price of $5 billion is too low. "[Even] if we go all the way to $6 billion, we would see a price of around $1.75 per share," Mr Dudley explained. "This would mean just about anyone who bought shares prior to 2020 would be selling at a loss. Unless you bought in at the capital raise in 2019, youd be getting a premium of 15c share not a great return for the wild ride youve had to endure." He described Ares as a logical acquirer of the company, suggesting it could keep AMP Capital which complements its own business model as a manager of property, credit and alternative investments while restructuring the wealth business within its private equity arm. He touted Macquarie as a potential acquirer of a restructured AMP wealth division or its growing bank. But he warned that Ares' ability to turn around AMP's wealth business, given the liabilities stemming from the royal commission and multiple class actions, was far from certain. "The banks have effectively given up on rehabilitating their wealth arms," Mr Dudley pointed out. Financial services M&A expert Steve Prendeville, of Forte Asset Solutions, agreed Macquarie was still in the mix to purchase AMP Bank or even its North wealth management platform. But he said AMP's financial advice network, despite being 40 per cent smaller than at its peak in 2014 and arguably the most high risk from a regulatory compliance perspective, still offered some potential value as a distribution vehicle for AMP Capital products. Any buyer thinking it could easily separate AMP's funds management divisions from the financial planning firms and licences that have been critical to their growth did not truly understand the tangled web of Australia's wealth management industry, Mr Prendeville said. There are a lot of issues around the advice side, sure," he said. "But one business impacts on the other.
Rich List 2020 in pictures - The Australian Financial Review
Financial Review photographers Louie Douvis and Dom Lorrimer worked their magic on the 2020 Rich listers. Here's a gallery of their work.
"I dont cuddle the ladies anymore. I dont put the boys in a headlock." Arthur Laundy, with son Craig, is back in the pubs but things are different. Dominic Lorrimer
AMP's days are numbered - The Australian Financial Review
While AMP persists with its strategy of selling assets, shareholders now find the prospect of someone else actually breaking the company into pieces. If the price is right, this would be a sound transfer of risk.
Of course, the key question is: what is Arougheti willing to pay for a business that he, no doubt, will break into separate pieces? The $5 billion price included in The Australian Financial Review's Street Talk column works out about $1.50 a share. This is unlikely to be enough given that the share price has already passed that level. But the argument in favour of a higher price will come up against the problem that has plagued AMP since the Hayne royal commission exposed its flawed advice business model. The advice business at AMP is uneconomic in its current form because there is too much cost in the value chain attributed to financial advice. The integration between advice and the flow of funds to AMP Capital pushes the boundaries of providing advice in the long-term interests of clients. AMP chief executive Francesco De Ferrari has virtually admitted he needs the country's regulators to simplify the regulatory settings for financial advice or millions of Australians will go without. Underpinning his appeal for help is that AMP's advice business will struggle to make money from advice to the masses when the regulator requires highly detailed statements of advice. AMP said on Friday, in response to the Ares proposal, that it is continuing with its portfolio review announced in September. "AMP has received significant interest in its assets and businesses and is assessing a range of options in a considered and holistic manner, including continuing to pursue its three-year transformation strategy, with a focus on maximising shareholder value," the company said. Essentially, AMP responded to the interest in the company from Ares with a proposal to start breaking itself apart. Every asset is being considered for sale. This strategy is predicated on the idea that AMP's sum of the parts is worth more than the market values the company at. Investment bankers, analysts, fund managers and many commentators have said the business is worth more broken apart than in its current form. Fund managers do prefer pure-play businesses, which explains why Australia is the home to corporate demergers. Ares, which has $US179 billion in assets under management, would probably value the AMP Capital business, which has $189 billion under management, between 0.7 per cent of assets under management and 2 per cent of assets under management. These valuation metrics are the highest amounts paid this year for major fund management operations. Ares could arguably pay more if it can be assured of getting a good price for the AMP Bank and securing long-term contracts for funds being managed on behalf of AMP clients and AMP's former life business. But it may find it difficult to sell the advice business given the concentration that has already occurred in this sector. Unfortunately, AMP has suffered severe damage to its brand, which explains the continued outflows of about $2 billion a quarter.
ANZ Bank full-year profit plunges 42 per cent to $3.76b - The Australian Financial Review
ANZ has made a credit impairment charge of $2.7b to protect against coronavirus losses.
Its strong balance sheet has allowed ANZ to distribute some profits to shareholders: it will pay a final dividend of 35¢ per share, fully franked with no discount for its dividend reinvestment program, after it paid a 25¢ interim dividend in May. Analysts had been expecting a slightly higher payout before the bank announced additional write-downs earlier this week, with APRA's edict to limit dividends to no more than 50 per cent of profits still in place. While our immediate focus has been on assisting customers, we have also taken steps to protect the interests of our shareholders by maintaining our strong capital position, tightly managing costs and bolstering credit reserves, while still managing to pay a prudent dividend without diluting their holdings, ANZ CEO Shayne Elliott said. The net interest margin - a key revenue driver - shrank to 1.63 per cent from 1.75 per cent as low official interest rates squeezed the gap between interest paid out on deposits and earned from loans in a competitive market. Yet ANZ said home loan growth to owner-occupiers was above the market average, or "system", and deposits remained strong as conservative customers decided to save more. It's home loan portfolio grew from $264 billion at the end of March to $275 billion at the end of September, lifting its mortgage market share from 14.1 per cent to 14.4 per cent. Return on equity sank to 6.2 per cent, from 10.9 per cent a year ago. But the common equity tier 1 capital ratio - the key measure of strength - was 11.3 per cent, just 0.1 percentage points down over the year, which outgoing chairman David Gonski, who retired from the role on Wednesday, said was a highlight for the board. Evans and Partners analyst Matthew Wilson said the result was largely as expected and the ANZ is pulling all the levers at its disposal to protect earnings in COVID-19 environment. "No question about the supply of credit .... its all about demand," Mr Wilson said. "Swamped by RBA liquidity and hamstrung by a very low interest rates and a flat yield curve, ANZ is doing its best to control what it can: costs and non-interest income." ANZ warned investors the ongoing pandemic had "increased the estimation uncertainty" in its financial statements. "The ramifications of COVID-19 continue to be uncertain and it remains difficult to predict the impact or duration of the pandemic," it said. The results provided fresh details on the critical issue of deferred loans. While around 95,000 of its one million home loan customers being granted a deferral at the peak, the quantum of frozen loans continued to roll off and was down 10 per cent month-on-month. ANZ's head of retail banking Mark Hand said the bank wasn't having the same problem as other banks - where customers on deferral were giving them the silent treatment, or 'ghosting' them - which has affected as many as one in five frozen loans. We havent had a big issue with ghosting. So certainly customers that you call dont answer the the phone the first time you call theyve got a lot of other things on in their lives," Mr Hand said. "But what we are finding is you email customers, you write to them, you call them, some proactively call us. But for us, its only about three per cent of customers that were trying to get in touch with." ANZ said at October 15, there were 55,000 accounts where six month deferrals had been completed. Of these, 79 per cent are returning to full payment, 20 per cent had requested a further deferral, and 1 per cent have restructured their loan or sought additional support. Of the remaining deferrals still active, ANZ said "half have at least a three-month payment or greater savings buffer and a quarter have made at least one payment while on deferral". Of the 23,000 deferred business loan repayments, ANZ said 15,000 are completed as at October 15 and of these, 1,600 received a four month extension - and 60 per cent of those were from Victoria. The results comes after ANZ on Tuesday pointed to rising customer refunds as the remediation bill almost doubled, declining value of its software, and a write down of goodwill as factors hitting its cash profit by $528 million. The additional remediation costs have taken the bank's total spend on program costs and refunding customers to $1.59 billion since 2017, as ANZ and the other banks headed into a royal commission. Analysts were surprised this week at the extent of ANZ's additional remediation costs. Pointing to ANZ's stable management, a strong balance sheet and prudent credit reserves, Mr Elliott the bank would be able to support customers and protect the long-term interests of shareholders. While we are not managing the business expecting things to return to the way they were before the pandemic, nor are we sitting idle waiting for the next event to happen to us, ANZ is well placed to respond to the opportunities that are emerging as a result of accelerated structural shifts in the economy," he said. ANZ shares closed on Wednesday at $19.16, their highest level since June and up 35 per cent since the market nadir in mid-March.
ASX to slip, global investors on edge - The Australian Financial Review
Australian shares are poised to open lower. European stocks closed lower amid virus concerns; Dow's losses accelerate, S&P 500 turns negative.
In New York, shares were mixed at the close with the Dow and S&P 500 lower, while the Nasdaq held modest gains. At 4pm, the Dow had shed 222 points or 0.8 per cent with 23 of its 30 components lower. As for the US presidential election, here's TD Securities latest view of what's happening: "With only a week to go before Election Day, Joe Biden has maintained a significant lead over President Trump in national polling despite a recent pullback in momentum. The former VP's advantage now stands at a still-high 9.2pp, down from 10.3pp last week. "Polling at the state level is showing a similar shift, with Biden losing some ground in key toss-up races where he still maintains the lead, including Arizona, North Carolina and Florida. Biden has also lost support in Pennsylvania and Ohio, while making inroads in Iowa." TD said betting markets are showing the shift in momentum as well, with President Trump consolidating his lead in Florida and flipping North Carolina to "leaning Trump" from "leaning Biden". "Still, Biden has maintained a comfy advantage in Pennsylvania and Arizona, which are key states for Trump's reelection plans." Today's agenda Local: Australia third quarter CPI No overseas data Market highlights ASX futures down 24 points or 0.4% to 6020 near 7am AEDT
- AUD +0.1% to 71.33 US cents
- On Wall St near 4pm: Dow -0.8% S&P 500 -0.2% Nasdaq +0.6%
- In New York: BHP -1.2% Rio -0.5% Atlassian +2.7%
- Microsoft +1.6% Facebook +2.2% Amazon +2.5% Apple +1.5%
- In Europe: Stoxx 50 -1.1% FTSE -1.1% CAC -1.8% DAX -0.9%
- Spot gold +0.4% to $US1909.15/oz at 1.59pm New York time
- Brent crude +2.2% to $US41.36 a barrel
- US oil +3% to $US39.71 a barrel
- Iron ore +0.4% to $US115.13 a tonne
- 2-year yield: US 0.15% Australia 0.11%
- 5-year yield: US 0.33% Australia 0.27%
- 10-year yield: US 0.77% Australia 0.80% Germany -0.62%
- US prices near 4.15pm in New York
Severe COVID-19 infection appears to give better protection: study - The Australian Financial Review
Research shows those with an acute viral attack might be protected against reinfection for longer periods than those with milder symptoms.
The study showed the typical antibody response after an acute viral infection peaked between three and four weeks and then waned. The authors studied the antibody response of 59 patients and 37 healthcare workers at Guys and St Thomas NHS Foundation Trust in London for three months following the onset of their symptoms. Those with severe disease generated the strongest antibody response, and although this response diminished, neutralising antibodies were still detectable more than 60 days after symptoms began. People with a milder COVID-19 disease also generated an immune response, but it was smaller and declined towards baseline levels. Some healthcare workers had no detectable immune response within the same follow-up period. The results suggest the kinetics of the response are similar to other endemic seasonal coronaviruses. These insights have notable implications for vaccine design and disease management. They suggest vaccines will need to generate a robust and long-lasting immune response akin to that generated in severely ill patients and that boosters may be required to provide long-lasting protection. The authors say studies using samples collected from these same study participants at extended time points are now needed to determine the longevity of the neutralising antibody response as well as the neutralising antibody threshold for protection from reinfection.
Last drinks for beverages analysts, UBS with a spirit lifter - The Australian Financial Review
You can forgive the consumer sector analysts for being grumpy about Coca-Cola Amatil's takeover.
The only good news in the meantime was Foster's wine spin-off, Treasury Wine Estates, which has proved too expensive for potential acquirers and will record one decade on the ASX-boards next year. So now the beverages analysts often cover the whole consumer retail sector and some have even had to pick up other rounds such as gaming, just to keep their bosses happy. They're not expected to let Coca-Cola Amatil go down without a fight. There's the potential for a valuation battle - although it is hard to see who on the buy-side will be willing to try to turn the potential battle into a full blown war against acquirer Coca-Cola European Partners and even Atlanta-based The Coca-Cola Company. UBS banker Greg Peirce is advising Coca-Cola Amatil. Daniel Munoz The other talking point inside investment banks on Monday was who got spots on the coveted ticket. As Street Talk reported on Sunday, UBS is taking Coca-Cola Amatil through the talks while Rothschild is chief adviser to Coca-Cola European Partners. Credit Suisse also popped up as a second tier adviser to the Europeans' board. UBS's Greg Peirce, fresh from a stint in Hong Kong and with a big global job at the Swiss bank, is running the team, while Rothschild's Australian consumer sector head Sam Prentice and M&A boss Chris Forman are doing the heavy lifting on the buy-side. It's a big ticket item for UBS - at a time when they needed a spirit lifter after seeing some of their top dealmakers walk out the door. Peirce remains firmly in the building for now, and if he's to follow former colleagues to Barrenjoey Capital Partners, his asking price probably jumped a whole lot higher for BJ boss Matthew Grounds on Monday.
Holgate bought the watches: former Australia Post chair John Stanhope - The Australian Financial Review
John Stanhope says the Australia Post board approved a gift for senior executives but did not sign off on Cartier watches now believed to have cost $19,950.
Sources close to Ms Holgate believe she followed governance processes by seeking board sign off on the gifts. Mr Stanhope, appointed by Labor in 2012, said Ms Holgate proposed the gifts after the deal was secured with Commonwealth Bank, Westpac and National Australia Bank. "They brought a lot of revenue to Post and to taxpayers, let alone the benefits for banking in regional Victoria. That is why the board supported her recommendation," he told AFR Weekend. The card signed by then chairman John Stanhope in October 2018 which accompanied luxury watches paid for by Australia Post. "These people did an exceptional job and deserved a reward. But we left it for the CEO to decide the nature of that reward. I don't recall being asked about how much would be spent. "Did Christine drag me out of my office briefly for a morning tea presentation? I have checked my diary. It is not in my diary and I can't recall. Was I told it was a watch? No. "I do think Christine has been caught in some kind of wider play." The [email protected] deal saw Australia Post collect nearly $70 million from the banks for services to regional customers using post offices to make transactions. Some senior staff were critical of excessive spending by Ms Holgate, including on hospitality and general expenses. The independent review is likely to consider more than $87,000 in corporate credit card purchases, as well as nearly $290,000 on a second card issued for her office. I think there wouldn't be a board member of a government agency or a CEO of a government agency that didn't get my message yesterday. Prime Minister Scott Morrison One former employee said largesse was spoken about regularly, including incentives for sales teams promoting monopoly mail services. "The saying was, 'You only get one Australia Post in your lifetime so don't waste it'," the former employee said. Another photo shows a dinner organised by Ms Holgate in 2018, which she and members of the board missed due to negotiations over bonus payments. Most of the guests in the photo including staff Chris Blake, Tom Priestley, Laz Cotsios, Jared Newton, Andrew Walduck, Christine Corbett, Andrew Parker and Bob Black have left Australia Post. Executives Garry Starr and Greg Sutherland, who both received watches, attended the event. It is understood Australia Post paid $18,000 for a short film starring Ms Holgate for a March 2018 Association of South-East Asian Nations summit. Some members of the government believe it is unlikely Ms Holgate will stay in the job, which has a $1.4 million base salary, and are critical of her defence of the watch purchases and denials that public money had been used. Mr Morrison said on Friday: "I think there wouldn't be a board member of a government agency or a CEO of a government agency that didn't get my message yesterday. I think they got it with a rocket."
Woodside scales up Scarborough LNG amid cost challenge - The Australian Financial Review
Oil and gas producers are confident LNG prices have turned the corner and are working to put growth ventures back on the development path after using the downtime to improve project economics.
Both Woodside and Santos posted third quarter sales that were dragged down by lower LNG prices, but both expect that the September quarter will be the trough for prices. Santos posted higher revenues than Woodside, at $US797 million ($1.12 billion), helped by record production, with a marginal 2 per cent increase from the June quarter. Woodside posted sales of $US699 million, down 9 per cent from the June quarter and 42 per cent below a year earlier. The average price Woodside got for LNG slid to $US3.90 per million British thermal units, less than half the $US8.70/MMBTU received in the September quarter of 2019. Weaker sales were expected for the oil and gas producer in the September quarter due to the lag effect between oil prices and LNG contract prices, which was on full show in the period. However, spot LNG prices which better reflect the market fundamentals of the underlying commodity than contract rates have already more than tripled since record lows in April, when they hit $US1.85/MMBTU. "If you look at spot delivered prices for December of $US6.50/MMBTU, that's a number we havent seen all year," Ms Duhe said. "But when you look at how the recovery has been, particularly in markets across Asia-Pacific, which is our traditional customer base, they seem to be doing quite well and fully recovered if not continuing back on growth trajectories, and thats what we think will need to happen as we get into 2021 as well." Santos chief executive Kevin Gallagher said he expects higher LNG prices in the December quarter on both contract and spot rates, also pointing to prices above $US6/MMBTU for late this year. The reworked Scarborough option involves increasing upstream LNG capacity from 6.5 million tonnes a year to 8 million tonnes a year by increasing the size of the pipeline from the offshore field. The capacity of the planned second LNG train at the Pluto site near Karratha remains at about 5 million tonnes a year, with the extra output processed at the first Pluto train and at the North West Shelf venture. Credit Suisse analyst Saul Kavonic said the upsizing could reduce the break-even price for the Scarborough project by up to US35¢/MMTBU, making a difference to the economics. "Scarborough is a globally competitive project that can deliver LNG into north-east Asia at under $US5/MMBTU," he said, noting that the long-term marginal cost of LNG is closer to $US7/MMBTU. "But it still can take a brave board to sanction any large capex project before market conditions improve," Mr Kavonic added, signalling a go-ahead isn't a given. Woodside's second major growth project, the $US20.4 billion Browse venture, remains firmly on the backburner with no progress reported in the quarter. Ms Duhe said work on Browse was "quietly happening in the background" on cost optimisation and commercial terms for gas processing at the North West Shelf. In the meantime, a preliminary deal was done in the quarter for processing gas from the onshore Waitsia field held by Mitsui and Beach in the North West Shelf LNG plant. Woodside remains in the mix for Chevron's one-sixth stake of the North West Shelf venture, with Ms Duhe reiterating its readiness to potentially pre-empt another buyer taking that stake. "We know that asset very well and we know absolutely what we think it's worth, and well keep that closely in mind as we follow this going forward," she said. Woodside also wants to sell down its expanded stake in the Sangomar oil project in Senegal, although Ms Duhe suggested that may only happen once construction is further advanced. Likewise, Woodside's efforts to sell a stake in the Scarborough project are likely to be ramped up again once the rework of the project is settled and commercial arrangements are finalised for gas processing. RBC Capital Markets analyst Gordon Ramsay said Woodside's large LNG projects look "fundamentally challenged", but he expects Woodside will push forward on Scarborough, although he is less optimistic on Browse. Shares in Woodside dipped 1.6 per cent to $18.27.
Qld's November 1 border reopening with NSW in doubt - The Australian Financial Review
Queensland's tourism industry has been sweating on the November 1 border reopening with NSW.
"That's twice what they had in the seven days before that. So there is still live outbreaks there," he said. "There are still cases they are unable to link to existing clusters." Mr Miles said the border decision was still pending, with Dr Young reviewing the situation in NSW. Ms Palaszczuk said she would receive an update on the border situation ahead of the national cabinet meeting on Friday. She reiterated that any final decision on the November 1 border reopening would be dependent on a green light from Dr Young. Ill be having a briefing, as I do, before national cabinet tomorrow morning, so Ill be speaking with the Chief Health Officer then about national cabinet matters," she said. Weve said very clearly that decision will be made at the end of the month. Ill get an update on that. Critics of the border closures, which have decimated the state's multi billion-dollar tourism industry, believe Labor will reopen borders after the October 31 election, even if it means changing their previous criteria. LNP leader Deb Frecklington announced a childcare policy on the Gold Coast. Lydia Lynch Opposition Leader Deb Frecklington, who has been receiving briefings from Dr Young, said she would follow the health advice on the border. I have always said that the borders should not be closed a day longer than they need to be, she said. The health advice is that the borders are closed right now. The health advice changes on a daily basis. With nine days until polling day, Ms Palaszczuk has moved to shore up support in North Queensland which has been smashed by the loss of international and interstate tourists. Ms Palaszczuk used a trip to Fitzroy Island off Cairns to announce $40 million in funding for the Great Barrier Reef and other natural assets. The money includes $10 million for the Reef Credits initiative run by environmental consultancy GreenCollar which encourages companies to help improve water quality; $10 million for a Reef Assist program working with local councils and organisations; $6 million for ecotourism; $3.9 million for new "sailing trails" around Townsville and the Whitsundays and $10.1 million for upgrades to national parks and World Heritage areas. Ms Frecklington who pledged $80 million to increase the number of spaces in before and after school care programs in state primary schools confirmed the LNP would release its campaign costings before next Thursday at the latest.