The AMP Ltd (ASX: AMP) share price sank close to 30% in 2023. It significantly underperformed the S&P/ASX 200 Index (ASX: XJO), which rose by just over 9%. Ouch. Let's take a look at what happened to the ASX financial share.
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Higher interest rates
AMP has several different divisions, including asset management and banking. A higher interest rate environment, as experienced in 2023, can affect its business in different ways.
As a fund manager, the prospect of higher interest rates may result in the valuations of its assets falling in value. That's why we've seen the share prices of other financial services companies like Dexus (ASX: DXS), Charter Hall Group (ASX: CHC) and Pinnacle Investment Management Group Ltd (ASX: PNI) fall heavily over the last two years.
Higher interest rates could also lead to investors being less likely to allocate money to companies such as AMP to manage. In addition, AMP's banking division may possibly experience higher bad debts if more borrowers struggle to make repayments.
Latest operational update
AMP's last quarterly update was somewhat promising. The current AMP share price is likely to give the most weight to the last update.
In the three months to September 2023, AMP Bank's total loan book grew by $0.5 billion to $25 billion, and total deposits rose by $0.8 billion to $22.1 billion.
'Platforms' net cash flow was $426 million, down from $748 million in the three months to September 2022.
North inflows from independent financial advisers increased 17% year over year to $565 million.
However, the master trust cash flows and assets under management (AUM) reflected "the $4.3 billion mandate loss announced last year that transferred in August, with negative cash flows of $4.9 billion".
Finally, the company said the New Zealand wealth management's KiwiSaver saw net cash flows of $59 million.
Settlement of class action
AMP announced in November it had reached an agreement to settle the class action related to advice authorised by AMP's financial planning business.
The settlement was for a total of $100 million, while AMP made a provision of $50 million in its 2023 first half result. In reaching the settlement, AMP made no admission of liability.
Capital management program to restart?
In mid-December 2023, AMP advised it had returned $750 million to shareholders since August 2022 through both share buybacks and dividends. However, in August, the company said the final $350 million of the capital return would be paused until there was greater clarity on the litigation.
The ASX financial share is in ongoing discussions with regulators to begin the last stage of its capital return, but it's paused while those discussions continue.
AMP share price snapshot
It has been a good start to 2024 for the company, up 4.3% in the year to date.
