Governance troubles weigh on AMP downgrade

S&P has lowered its long-term credit ratings on AMP Limited and AMP Group Holdings to -BBB from BBB and AMP Bank to BBB from BBB+ amid uncertainty over a potential breakup and fears that executive departures will undermine the group’s operational effectiveness.

“In our view, the group is exposed to challenges that may disrupt its overall strategic direction and its ability to effectively execute its strategy,” said S&P analyst Nico de Lange.

“In our view, AMP Group’s governance standards are adequate. Nevertheless, based on the recent developments we do not consider the governance factors as strong as we previously considered.”

S&P warned that strong governance and management leadership will be key to executing a turnaround in the embattled wealth giant’s fortunes, and that it could lower its ratings further if AMP sold its investment management operations – depleting capital levels in the other businesses – or if debt-to-adjusted EBITDA ratios of the wealth operations remain persistently high.

“In our view, an upside scenario is unlikely in the next two years,” S&P said.

“The most likely route would be progress made toward implementing a clear strategic turnaround resulting in sound operational effectiveness and if the future debt-to-adjusted EBITDA ratios of the wealth or investment management operations are likely to remain below 1.5x.”

AMP has been bruised by a series of sexual harassment allegations against former AMP Capital CEO Boe Pahari and former wealth boss Alex Wade, along with general allegations aired by Labor senator Deborah O'Neill. The wealth giant has now initiated a portfolio review that could see its business broken up with an eye to maximising shareholder value.

“The board and management firmly believe in our existing strategy, including a re-pivot to private markets in AMP Capital and are confident that this will deliver long-term value for shareholders,” said AMP chair Debra Hazelton.

“However, we have taken a decisive step to undertake a portfolio review to ensure we appropriately assess all options to maximise shareholder value in a considered and disciplined manner.”