AMP, derivative plays and inaccurate balance sheets
By Stephen Mayne
January 14, 2008
The 2006 AGM produced some interesting exchanges as the company portrayed itself as having completely recovered from its near-death experience in 2003. This report was sent to Crikey subscribers on May 19, 2006.
Not much of it was picked up in the mainstream press today, but there were some very interesting exchanges at the AMP AGM yesterday. For starters, the company continues to have the most inaccurate balance sheet in Australia's top 50 companies, although it's now massively undervalued rather than massively overvalued.
The 2002 annual report claimed AMP had net assets of $18 billion when the market value had slumped to about $8 billion. This was all about the $10 billion that AMP dropped on its UK misadventure, but now that this has been demerged, the new AMP only claims to have net assets of $2.8 billion, yet the current market capitalisation is $17.8 billion.
Asked how on earth AMP's balance sheet could go from being $10 billion over the odds to $15 billion under in just three short years, chairman Peter Mason dodged the question and declined to invite long-time auditor Brian Long to speak.
Mason was also reluctant to engage over the large derivatives contract with UBS in late 2002 to de-risk AMP's UK business by protecting itself on the downside of UK equities but surrendering much of the upside. CEO Andrew Mohl told the 2003 AGM this had saved the company "hundreds of millions of of pounds", but the UK market has doubled since then. Mohl got quite animated after the meeting in a private chat as he defended the arrangement and he told shareholders the deal retained "most of the upside".
Crikey has written previously about the perception problems of appointing Mason chairman when he is a "senior adviser" with its main adviser, UBS, which pocketed upwards of $100 million from AMP during its capital crisis over the previous five years. Mason defended the arrangement, denied he would be involved in any AMP work and said he left JP Morgan because they wouldn't allow him to take on the AMP gig, which will pay a very tidy $480,000 in 2006 after yesterday's increase in directors' fees.
I gave the board a bollocking for returning all this excess capital in 2005 and 2006 when they massively diluted shareholders in 2002 and 2003 by issuing 711 million new shares – more than 60% of the shares on issue at the time – at an average of only about $4.20 each. Mason gave some meek line about history suggesting you could do things differently, but with the stock pushing $10 this week, shareholders were not particularly angry even though most would remember the stock trading above $20.
The most disappointing aspect of the meeting was not rolling James Hardie chairman Meredith Hellicar on the show of hands. She got back with about two-thirds support so clearly the clarion call to "send a message about corporate behaviour" could have been presented a lot better.
Check out all the proxy votes here and you'll see that Meredith was re-elected with more than 98.05% in favour so clearly even the union-backed industry funds failed to register a serious protest vote. Talk about a missed opportunity.
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