The David Murray-led AMP board is expected to come under renewed scrutiny ahead of the interim profit result next month after S&P chopped the long term credit rating of the embattled financial services group.
S&P announced on Monday that it had lowered AMP’s long term credit ratings to “BBB” from “BBB+” because it believes the sale of the group’s life insurance arm had undermined the creditworthiness of AMP Limited and the holding company AMP Group Holdings Ltd.
However, the group’s profitable banking arm, AMP Bank, has escaped the near-groupwide downgrade and continues to hold a “BBB+” rating.
AMP Limited is now only two notches away from “junk” status – a far cry from the AA- rating it held up to August 2018.
In a bleak assessment of the outlook for the group’s ratings, S&P said there was “a one-in-two possibility” of further downgrades.
“In our view, there remains a degree of uncertainty on the financial profile of the wealth and investment management segments, which could affect our assessment of the group creditworthiness,” S&P said in statement.
“The risk is balanced on the downside because we believe that the leverage of these businesses could be more aggressive than our current assumptions.
“The CreditWatch with negative implications on all rated AMP entities reflects a one-in-two possibility that we could lower the ratings further if the post-divestment financials reveal a weaker group credit profile than we expect.”
S&P indicated that a decision on whether AMP Limited’s long term rating will take another hit was likely after the company releases its half year financial accounts on August 13.
“We expect to resolve the CreditWatch within the next three months once we receive greater clarity on the post-divestment financials and future financial profile of the wealth and investment management operations, including their debt and EBITDA estimates,” S&P said.
“We expect to lower the long-term ratings on each of the rated entities by one notch if we consider the future debt-to-adjusted EBITDA ratios of the wealth or investment management operations are likely to remain at or above 1.5x, resulting in an overall weaker group credit profile.
“In that scenario, we also expect to lower the short-term rating on AGHL by one notch.”
S&P spared AMP Bank from the latest ratings action, citing the parent’s commitment to invest around $1 billion in the subsidiary.
“We now consider the bank to be a core part of the group,” S&P said.
“The assessment incorporates our expectation that the group will maintain long-term full ownership of the bank based on the group's publicly stated strategy and likely stronger synergies between the bank and the rest of the group, in particular wealth management.
“For example, the group plans to spend A$1billion over next three years on enhancing IT, processing, and digital capabilities, including the bank's core system updates and process automation.”