Pearl Assurance hit pushes writedown at AMP to £430m

AMP, the troubled financial services giant battling to keep its Pearl Assurance subsidiary in the UK solvent, revealed yesterday it would take a A$1.2bn (£430m) writedown this year, including A$850m against the value of its UK assets.

The move follows a turbulent year for the group which has seen its stock tumble nearly 50 per cent and its chief executive, Paul Batchelor, ousted after bungling the disclosure of Pearl's precarious financial position, causing its shares to hit a record low of A$11. The shares closed down slightly yesterday at A$12.

The Pearl fund, which AMP bought in 1989, has been used as a cash cow to fund expansion in the rest of the group and now is in need of its own rescue plan. An injection of £500m is being pumped into Pearl, which has now been closed to new business, to help it clear its solvency hurdle by the end of the year.

AMP is anticipating the writedown of A$1.2bn for 2002 will mainly come from goodwill. Around 60 per cent of AMP's business comes from the UK, where it owns Pearl Assurance, NPI, London Life, Henderson Global Investors and the independent financial advisers Towry Law.

Of the A$850m writedown expected in the UK businesses, A$600m will be in NPI. AMP paid £510m in goodwill for NPI in 2000. AMP's international businesses, which are in the process of being disbanded, will account for A$350m.

The new chief executive, Andrew Mohl, has put all the UK businesses under review and some or all of them may be sold off. The UK mortgage business, which employs 110 people, has already been earmarked for the axe. Mr Mohl said although the review is "still in progress" he had "formed the view that there will be significant asset writedowns". The group announced last week it was cutting a further 1,200 jobs in Australia, New Zealand and Britain.

Mr Mohl said previous valuations were no longer appropriate in light of the substantial falls in equity markets since June. He also said difficult operating conditions and the changes in the business meant writedowns were necessary to align the balance sheet with reality. "AMP believes the carrying value of these assets is unlikely to recover for some time and it will, therefore, be prudent to reflect a more realistic view in the balance sheet," said Mr Mohl.

A spokesman for the group in the UK said the writedowns were a purely a balance sheet issue and did not affect the operational capabilities of the businesses.

Analysts said the move was a display by the new management to wipe the slate clean and start the group off on a lower footing, thereby ensuring any improvements in performance look more impressive.