AMP, the Australian financial services giant, yesterday cleared its UK fund manager of compliance failings that were at first thought to pose serious "financial and reputational" risks to the company as it reported a record six-month loss of A$2.2bn (£912m).
Its fund manager Henderson Global Investors and its other UK businesses, Pearl, NPI, London Life and Towry Law, were the main culprits for the loss. AMP wants to hive off these companies from the rest of the group and yesterday said it had written down its UK assets by £900m.
"Unfortunately there is no 'quick fix' for the mistakes of the past. Many of the decisions we have had to make have sought to limit the damage to shareholder value from AMP's exposure to UK equity markets and ill-timed acquisitions," Andrew Mohl, chief executive of AMP, said.
He also gave Henderson, which has been earmarked to spearhead the demerged companies, a clean bill of health for its compliance systems after The Independent revealed an extensive internal compliance review was being done.
The review was sparked after an initial draft of an internal audit at Henderson, completed last month, threw up serious shortcomings in its risk controls that left it open to "significant financial and reputational damage". These included missing mandate documents and inadequate reviews that left mandate breaches at risk of going undetected. Henderson said the draft report contained inaccuracies, but shares in AMP plummeted to a record low as investors feared the demerger of its UK arm would be derailed.
"The review has now been completed and it concluded that there had been no breaches of client mandates," a spokesman for the AMP group said. "Some suggestions were made around strengthening internal controls, and these are now being implemented." These are understood to concern tightening the relationship between compliance procedures that are automated and those that are completed by hand.
While Henderson's compliance and internal risk controls were exonerated, the division's profitability has nosedived in the past six months. AMP said operating margins at Henderson had slumped 39 per cent. Profit margins from its other UK businesses fell 53 per cent to £17m and they made a net loss after tax of £869m.
But Mr Mohl yesterday said the demerger "remained the best strategic solution for the company". He did, however, reiterate that he was still open to selling the UK assets ahead of a listing. The company has said that several approaches have been made for the UK businesses, which are thought to be worth as much as £1.5bn, but no offer has yet been forthcoming.
The group had to inject £500m into Pearl last year to stop it breaching its solvency requirements, news of which cost the then chief executive, Paul Batchelor, his job.
AMP said "best estimates" show that all its UK life companies met their minimum regulatory capital requirements at the end of June this year.
Mr Mohl sought to quell fears that AMP will need additional capital to get the demerger off the ground, saying the group had A$11.5bn to fund the plan. It has already had to raise A$1.75bn this year.
Details of the demerger proposal will not be made public to its shareholders until October.