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Why AMP Limited shares are tanking again today

The AMP Limited (ASX: AMP) share price is falling again today after the embattled financial services group’s CEO was grilled at the Royal Commission about the group’s operational practices and the potential bill for structural remediation and compensating customers.

According to the Fairfax press at yesterday’s hearing the CEO conceded that it may have identified another issue around charging its corporate clients fees-for-no-service in addition to its retail clients. The issue relating to fees-for-no-service for corporate clients is reported to be around “small to medium corporate super plans established pre FOFA July 1 2013 managed by advisers.” However, according to AMP any compensation due is “unlikely to be material”.

It was also reported that AMP’S CEO stated at the Royal Commission that total remediation costs could hit a staggering $1.185 billion over a nine-year timeframe.

However, today AMP moved to clarify the situation via an announcement to the ASX that stated total remediation costs are actually considered to be $778 million pre tax or $545 million post tax. It also flagged that the $1.185 billion given by the CEO was inaccurate as it was based on a timeframe (9 years) that was considered to be too long to be acceptable to customers.

AMP is now estimating a pre tax cost of $445 million for remediation over issues including “fees, inappropriate advice and lost earnings”.

The confusion over the issue and huge sums of remediation being estimated show how far AMP has fallen in the face of the scandal with the stock now down around 60% over just the course of 2018. AMP’s fall has shown how it’s dangerous to try and “catch a falling knife” in investing as bad news often comes in batches, especially for a group in AMP’s predicament.

The entire financial services industry has been under a cloud due to the Royal Commission’s findings, with executives from the likes of Commonwealth Bank of Australia (ASX: CBA), National Australia Bank Ltd (ASX: NAB) and Macquarie Group Ltd (ASX: MAG) all on the stand in recent weeks.

Motley Fool contributor Yulia Mosaleva owns shares of Commonwealth Bank of Australia and Macquarie Group Limited. The Motley Fool Australia owns shares of National Australia Bank Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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