AMP sinks to all-time low on Henderson audit

Shares in the giant financial services group AMP sank to an all-time low yesterday after The Independent revealed widespread procedural failures in its UK-based Henderson Global Investors business.

The shares slumped more than 3 per cent to hit a new low after news reached Sydney that Henderson was in the process of conducting a second extensive review of its compliance and staff monitoring systems after a draft internal audit threw up damning faults.

The draft report, prompted by a number of "high profile mandate breaches", warned that shortcomings in its risk controls left Henderson open to "significant financial and reputational damage". The report was dated 4 July.

"You certainly don't want to have any question marks about the quality of compliance; that spells danger," a fund manager was quoted as saying in the Australian Financial Review yesterday after learning of the draft report's findings.

In another blow to Henderson, AMP also announced it was removing a A$1.5bn listed property trust from the fund manager and bringing it under the control of a newly created fund management company. AMP is seeking to exit the property trust sector and has already sold off up to A$5bn of funds managed by Henderson that bring in A$37m a year in fees.

Sentiment towards AMP took a further downturn yesterday when Merrill Lynch cut its earnings forecasts for the AMP group on concerns over its Henderson division. Brokers at the investment bank in Sydney said earnings would be down 6 per cent in 2003 and 7 per cent in 2004 and encouraged investors to sell the stock. Merrill cited the loss of these property mandates by Henderson and its exposure to the AMP-owned life insurance funds in the UK, which are managed by Henderson, as risks to the group as a whole.

AMP is planning to demerge its UK businesses, which also include Pearl Assurance, London Life, NPI and Towry Law, into a separate company by the end of the year. They will all come under the Henderson banner, unless the businesses can be sold. The news of an extensive review at Henderson comes as Sydney-based AMP is expected to report a first-half loss of more than A$2bn later this month, following its A$2.6bn write-down in May this year. The bulk of the write-down was related to its UK businesses, which have required capital support to meet their solvency margins and have now been shut down.

Fears of compliance issues at Henderson will inevitably mean it is now likely to face a barrage of questions from its institutional clients, worried that their mandates may be in danger of breach.

One corporate pension fund that is in part managed by Henderson said it would be taking the company to task about its compliance and mandate monitoring procedures at its next quarterly review.

Henderson reiterated the review process was still ongoing and that the draft report contained inaccuracies that were now being corrected.

Shares in AMP closed yesterday at A$4.75 (£1.90). They were trading as high as A$19 last year.