AMP shares hardly moved yesterday in the wake of Standard & Poor’s cutting the credit rating of the wealth manager for the second time since last August and warned there is a further cut to come that will see the embattled giant lose its A rating.
Thanks to the decision to sell its once core life insurance business in a $3.45 billion S&P cut the rating of AMP Group and its subsidiaries including AMP Bank to A- from A with a negative outlook.
Furthermore, S&P warned the credit rating of AMP Group was likely to be downgraded from its current rating of A- rating following the sale of the life business but would not do so until it had more clarity about AMP’s strategy.
S& P indicated that the company’s creditworthiness will be several notches lower after the sale of its life business.
While AMP remains well capitalised, its modest contribution to earnings is unlikely to bolster creditworthiness.
Competitive pressure on AMP Life and uncertainty around its strategy and capital adequacy have weakened its credit profile. Its rating will also be affected by S&P’s assessment of Resolution Life which is the buyer of the Life business. AMP will be a shareholder in resolution.
The shares finished at $2.40, up 0.4% on Monday.
An AMP spokesman acknowledged the announcement and the prospect of further actions from ratings agencies as it tries to build a business strategy that uses less capital.
“Consequently, we consider that the creditworthiness of the smaller and less diversified AMP group has weakened and could further moderate following the divestment. We see these pressures also translating through to AMP Bank” S&P’s analysts Nico DeLange and Mark Symes said in the statement.
