The Anglo-American fund management giant Amvescap confirmed stock market fears yesterday, saying it would slash its dividend by 50 per cent, to help pay for the $450m (£250m) fine imposed last week by US financial regulators over controversial trading practices.
The world's second biggest asset manager tried to reassure the market that the move would draw a line under a weak period, which has seen its shares fall amid concern about the ongoing US investigation and about the performance of Amvescap's funds. The company, whose headquarters are in Atlanta while its shares trade in London, reduced its interim payout to investors to 2.5p from 5p a share last year.
It signalled, however, that the cut - the first in a decade by Amvescap - would be followed by the return to dividend growth next year. "For 2005 onward, the board intends to return to its progressive dividend policy, taking into account the company's earnings and cash flow and the need to maintain an appropriate level of dividend cover," Amvescap said.
Shares in the group, which owns Invesco, rose 8.5p to 308.5p.
Amvescap finally reached a settlement with America's Securities and Exchange Commission (SEC) last week over market timing, the method of trading used by sophisticated investors to take advantage of delays in share pricing.
While not illegal, market timing disadvantages long-term investors. The SEC has clamped down on the practice, forcing some investment companies to pay out considerable sums of cash in settlements. In Amvescap's $450m settlement, $75m will come from reduced management fees. Its Invesco arm has also agreed to pay out $325m, while its AIM Investments will pay $50m.
The company will launch an advertising and marketing offensive to win back investors' confidence. It may also sue some of the other parties who were involved in the market timing for which it was fined.
There has been mounting pressure on Charles Brady, the chairman and chief executive of Amvescap, to relinquish the day-to-day running of the group. Last week he said he would split the chairman and chief executive jobs. Three internal candidates are being groomed for the chief executive's job:Mark Williamson, head of AIM, James Robertson, the chief financial officer, and John Rogers, the head of Invesco worldwide. Mr Brady is expected to step down altogether within two years.