The AMP Limited (ASX: AMP) share price fell 8% today following news that it may scrap its interim dividend to shareholders with uncertainty over the Resolution Life takeover of its Life business.
AMP Share Price Over 12 Months
AMP’s ASX update comes after months of heartache following the Royal Commission into banking and financial services in 2018. The Royal Commission prompted the divestment of key assets such as the Life insurance business.
In 2018, AMP announced its plans to sell its Life insurance business to Resolution Life for around $3.3 billion, including $1.9 billion in cash. Some of this cash could be returned to shareholders as a dividend payment. The following video describes the process of paying ASX share dividends in detail.
Why Is AMP’s Dividend Under Threat?
Today, AMP said it believes the Resolution deal is “highly unlikely to proceed”.
Why?
It seems the key issue for AMP and Resolution lies with the Reserve Bank of New Zealand and its regulatory approval of the deal. At its core, the deal needs to be approved by RBNZ and enable Resolution to keep the current ‘branch structure’, effectively exempting the company from certain regulatory conditions.
On July 13, Resolution told AMP the RBNZ would not accept its application unless it ringfenced the assets in New Zealand, benefiting its NZ-based policyholders.
AMP believes the determination would “adversely impact” the returns achieved by the takeover for both companies.
The two parties are still in talks to get the deal over the line but the consequences for AMP couldn’t be any clearer.
“The failure to meet this condition precedent is exceptionally disappointing as the sale of AMP Life is a foundational element of AMP’s strategy.” – AMP
“For shareholders, the agreement with Resolution Life and our exit from wealth protection and mature delivers important strategic benefits,” AMP’s acting CEO Mike Wilkins noted in today’s update.
“It substantially simplifies our portfolio, delivers certainty and frees up capital.”
What Now?
It’s hard to know exactly what will follow today’s update however one thing is for sure — it’s been a painful 1, 3, 5, and 10 years for AMP shareholders.
Frankly, if I held AMP shares — which I don’t — I’d cut my losses and replace the foregone dividend income with a diversified low-cost Australian shares index ETF.
Disclosure: At the time of publishing, Owen does not have a financial interest in any company mentioned in this article.
