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Earnings: AMP share price soars despite $107 million drop in profits

The AMP Limited (ASX: AMP) share price surged to a high of more than 11% this morning despite the wealth manager announcing a 42% plunge in profits.

Underlying profit fell to $149 million in 1H20, down from $256 million in 1H19, due to the impacts of the coronavirus pandemic

COVID-19 bites into AMP earnings

AMP reported that earnings across its businesses were affected by COVID-19. The Australian wealth management business saw a 42.7% decline in earnings as funds flowed out of the business thanks to the Government’s early release of superannuation scheme. 

Cash outflows were $4.4 billion during the half, with the exit of some corporate superannuation mandates also impacting cash flow by $1.3 billion. Assets under management decreased by 10%, reflecting the impact of COVID-19 on investment markets.

AMP Bank earnings dropped 29.6% with a credit loss provision of $24 million to manage potential mortgage defaults related to COVID-19. During the half, the bank continued to grow its mortgage book and retail deposits despite the uncertainty and strong competition. The residential mortgage book increased 2.9% to $20.5 billion.

AMP says credit quality remains strong with mortgages in arrears representing 0.78% of the mortgage book.

Earnings fell 40% in the AMP Capital business which saw a reduction in sponsor capital valuations and transaction fees. A 39% decline in performance and transaction fees was reported due to the slowdown in transaction activity during the pandemic. 

Capital position and dividend

AMP remains well-capitalised with $1.4 billion in surplus capital above target requirements. As a result, the company has announced a series of capital management initiatives to return $544 million to shareholders.

$344 million will be returned via a special dividend of 10 cents a share, fully franked. Up to $200 million will be returned via an on-market share buy-back. This indicates the wealth manager considers its shares good value, which may account for today’s share price increase. Nonetheless, AMP said that following the payment of the special dividend, it did not expect to declare a final FY20 dividend. 

What’s next for AMP earnings? 

Following the sale of its AMP Life business, AMP is focused on delivering transformational strategy and navigating the current uncertain economic environment.

CEO Francesco De Ferrari said, “We expect conditions to remain challenging. However, we also see opportunities emerging over the longer term as we transform AMP to be a simpler client-led and growth-oriented business.” 

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Motley Fool contributor Kate O'Brien has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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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Kate O'Brien