The senior executives at AMP Limited (ASX: AMP) will be in the hot seat during today's annual general meeting on news that our largest listed wealth manager has been hit with a second class action lawsuit.
News of the new lawsuit comes as AMP provided a March quarter update that highlighted weaker performance of its wealth management business and a warning of further customer remediation costs following the damning revelations at the Haynes Royal Commission.
Given the string of bad news, the stock isn't faring too badly as it shed 1% to $4.04 in morning trade when the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) is up 0.3%. I had expected a worse reaction although the stock had already shed more than 20% of its value in the past two months.
The findings at the Royal Commission had sparked the lawsuits with law firm Quinn Emanuel Urquhart the first to file the class action seeking $2 billion from AMP, which if successful would be a record lawsuit against an ASX company.
Law firm Phi Finney McDonald filed the second lawsuit, which is backed by litigation funder IMF Bentham Ltd (ASX: IMF). AMP has said it will "vigorously defend" itself – perhaps with more vigour than it defended its customers from its own bad behaviour.
Some analysts may have started paring their forecast on AMP but I don't think the profit downgrade cycle is over for the stock.
The $200 million drop in net cashflow from AMP's Australian Wealth Management (AWM) business in the March quarter is likely to accelerate as the period was before the Royal Commission kicked off.
I am expecting a pick up in fund redemption to show up in the June quarter as clients withdraw their capital from AMP's fund products. It will take a while before AMP can restore its credibility so the outflow could continue for a while yet.
The good news from the quarterly update is that its banking division reported a 2% increase in the value of its loan book to $19.8 billion despite the slowing housing market, while AMP Capital enjoyed strong cashflow from its investments in real assets.
"AMP stands behind its advice business, and the value it creates for customers," said AMP's interim chairman Mike Wilkins.
"However, we have been very disappointed that, in some instances, our customers have not received appropriate levels of service for the fees they have paid. We are working hard to accelerate the remediation for our customers."
AMP isn't the only one swept up in the Royal Commission. The big banks including Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC), National Australia Bank Ltd. (ASX: NAB) and Australia and New Zealand Banking Group (ASX: ANZ) are also targeted by the Royal Commission.
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