AMP warns of big downgrade

AMP has been forced to downgrade its profit and shareholder dividends as it revealed $565 million extra costs and reparation payments flowing its bad financial advice.

However, the hefty amount is unlikely to be enough to repair the self-inflicted damage as the historic Australian company also faces several class actions from investors, ongoing reputational damage and continued loss of market value.

Shares in the wealth management giant fell 5.17 per cent or 18¢ to a 15-year low of $3.30 yesterday.

AMP said it has set aside $290 million for remediation payments to customers, $150 million to set up a division to find and calculate the losses to customers and $70 million to put in place new risk and compliance controls.

It has also spent $55 million complying with royal commission requirements.

The company has warned shareholders to expect reduced dividend payments and notified the market that it has cut some superannuation fees which will reduce its future annual fee income by $50 million a year.

The hefty dump of bad news was made by acting AMP chief executive Mike Wilkins just two weeks before the company is due to announce its profit result for the six months to June.

Mr Wilkins said the company has downgraded its forecast half year profit to between $490 million and $500 million, compared with $553 million a year ago.

One of the main reasons for this is a continued underperformance by its insurance divisions, with Mr Wilkins confirming a $20 million loss after the cancellation of a large group insurance plan by one of its customers.

Mr Wilkins also warned shareholders that the upcoming interim dividend would not only be based on the lower profit but would also be less than its benchmark payout target.

AMP shareholders can also expect a lower full year dividend.