It's hard to imagine but the AMP Limited (ASX: AMP) share price could enjoy a big relief rally this morning after it handed down its first half profit result, announced a capital raise and resurrected a deal to sell its insurance arm to Resolution Life.
Never mind that its first half net loss of $2.3 billion is probably it's worst ever as it contained a $2.5 billion write-down and that its underlying interim net profit that excludes all the yucky stuff also fell 38% to $309 million – we could still see the AMP share price rally off its record low today.
If the results weren't complicated enough, management has also thrown in a $650 million cap raise and renegotiated a $3 billion deal to sell AMP Life that was thought to be dead in the water.
It's not the profit, stoopid
In many respects, the profit result is a sideshow. Investors knew it will be ugly and they can smell a cap raise, especially after the original agreement to sell AMP Life was blocked by the New Zealand regulator.
Normally a cap raise would add pressure on a stock, but in this case, I believe AMP could bounce from "sell the rumour, buy the fact" investors who have aggressively shorted the stock in anticipation of a cap raise. These short-sellers are likely to rush to cover their positions by buying the stock and pushing up the price.
The sale of AMP Life will likely add to the short-squeeze too as it meant that AMP didn't need to raise quite as much as some had feared (a figure of ~$1 billion had been bandied around). The market hadn't been expecting Resolution Life to offer $2.5 billion plus a $500 million equity stake in a new Australian vehicle to AMP.
Both parties are counting on the creation of this Aussie entity to pacify the concerns of Kiwi regulators.
Foolish takeaway
AMP's new chief executive Francesco De Ferrari will use the proceeds from the cap raise and asset sale to fund a badly-needed transformation strategy to simplify its operations and win back the trust of clients.
Simplification is all the rage. Commonwealth Bank of Australia (ASX: CBA) is also banking on one to turn around its fortunes, while the other big banks like Westpac Banking Corp (ASX: WBC) are also shedding assets.
But it's AMP that took the biggest beating from the Hayne Royal Commission, which exposed immoral and illegal behaviour among our largest financial institutions.
Now that De Ferrari has managed to address AMP's balance sheet issues, he only needs to convince investors that his simplification strategy (which is anything but to execute) will pay dividends in the not too distant future.
I still wouldn't buy AMP shares (not yet), but at least now, I will be putting it on my watchlist.
