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Why is the AMP share price bouncing back?

Posted: 27 May 2021 12:15 pm

Shares in the financial services giant have slid more than 35% over the last 6 months.

Investors in AMP (ASX: AMP) are finding out that bad news is actually, good news! AMP share prices have continued to slide for the last six months, but staged a rebound on Thursday. At the time of writing, the stock was up 4.7% at $1.12 each.

Why the AMP stock price is recovering

Australia's corporate regulator has announced civil proceedings against five companies linked to AMP for allegedly charging life insurance premiums and advice fees to customers even after their deaths.

The allegations stem from the Financial Services Royal Commission in 2018 where senior AMP executives admitted the company had known it had been charging life insurance fees to dead customers.

The threat of Australian Securities and Investment Commission (ASIC) action has been looming over the company ever since and the one thing the market hates is uncertainty. As a result, AMP shares have lost nearly 75% of their value since 2018.

Market watchers believe ASIC’s announcement on Thursday removes at least one uncertainty for the beleaguered company, which has struggled to retain leadership in recent years amid attempts to transform its culture.

ASIC said the conduct by the AMP companies demonstrated "a system of conduct or pattern of behaviour that was, in all the circumstances, unconscionable".

AMP has responded by saying it has taken action to change its processes and policies since the issues were discovered, it has remediated more than $5 million to all the impacted customer accounts and on Thursday again apologised to customers.

Buyback, restructuring

In a partial reprieve for AMP, ASIC’s case focuses on the alleged breaches occurring after May 2015, since breaches before that date are now statute-barred under the law.

This involved AMP companies allegedly receiving over $500,000 in insurance premiums and around $100,000 in advice fees from deceased customer accounts.

Meanwhile, investors are also pinning their hopes on efforts to restructure the company as well as the launch of a share buyback.

AMP commenced an on-market, $200 million share buyback on 10 May, which many hope will bolster the company’s market value.

The company last month also announced it would spin off and list its private markets investment arm AMP Capital, which manages about $50 billion in infrastructure and real estate assets in markets across North America, Europe, the Middle East and Asia.

Those moves are yet to be reflected in the AMP share price, which is down more than 35% over the last 6 months. Investors would be hoping Thursday could prove to be a turning point.

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