The downgrade indicates a more negative outlook on the quality of AMP’s debt securities, and reflects the squeezed margins and investor outflows evident in recent financial results.
“The Australian wealth management business continues to experience significant net cash outflows,” the note said.
“This reflects the reputational damage to AMP’s brand following allegations of governance failures raised at the royal commission.
“This has led to a steady decline in the persistency ratio … which has fallen from a peak of 90 per cent in 2016 to circa 86 per cent in 2019.”
The research house forecast that net cash outflows would continue into 2020 as the company “works to repair its reputation”.
“We expect ongoing margin compression along with higher regulatory and compliance costs will continue to constrain the group’s earnings in 2020,” it said.
AMP Bank’s medium-term note program was also downgraded as a flow-on effect from the downgrades elsewhere in the business, although Moody’s highlighted the bank’s “very strong asset quality, good capital adequacy and profitability”.
In a statement to the ASX, AMP said the downgrades were “not related to current volatility in the capital markets and not material to the operations of AMP”.
“AMP continues to have a strong balance sheet and capital position,” it said.
