The AMP Ltd (ASX: AMP) share price plunged 15.9% on Monday after AMP scrapped its dividend – but could other ASX banking stocks be facing similar dividend cuts?
What’s the story with AMP’s dividend?
The AMP share price bottomed out at a record low on Monday after the wealth manager announced it would not pay a first-half dividend after failing to sell its life insurance business.
Amongst the fallout from the 2019 Financial Services Royal Commission, AMP announced that it was set to sell its $3.3 billion life insurance business but on Monday backtracked after the Reserve Bank of New Zealand rejected the sale.
Part of the New Zealand central bank’s conditions was to separate out counterparty Resolution Life’s New Zealand assets to benefit life insurance policyholders in the country, which AMP said on Monday it could not comply with due to an adverse impact on returns from the sale.
Will other ASX banking stocks follow suit?
In early May, National Australia Bank Ltd. (ASX: NAB) announced that it was slashing its much-coveted dividend by 16% to 83 cents per share (cps), down from 99 cps in first half 2019.
NAB had previously offered the top dividend yield of the Big Four banks, and a big factor was its regulatory capital requirements following delays to its expected wealth management business.
A drop off in profitability for Westpac Banking Corp (ASX: WBC) sparked speculation that it may cut its dividend for the first time since 2009, but as yet there hasn’t been any confirmation of those plans by the bank.
Westpac’s net interest margin (NIM) fell from 2.17% in 1H18 to 2.06% in 1H19 as rising wholesale funding costs and lower lending rates ate into the bank’s first-half profit.
I think the AMP situation shouldn’t have major ramifications for bank investors at present, particularly as they look to move away from any major wealth management operations (bar Westpac).
Particularly with lower wholesale funding costs and many of the banks not fully passing on the recent RBA rate cuts, I’d expect to see NIMs remain intact and allow the banks to meet regulatory requirements while also keeping dividend-seeking investors happy.
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Motley Fool contributor Kenneth Hall has no position in any of the stocks mentioned. 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.