Source: AMP Limited
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  • AMP Limited (ASX:AMP) is bringing a new digital bank to Australia in partnership with the UK’s Starling Bank
  • AMP also made mention of the FY24 outlook today
  • “NIM will continue to be under pressure in FY24”, the bank wrote, but expects “lower funding costs as a result of this initiative”
  • AMP shares last traded at 87.5 cents

AMP Limited (ASX:AMP) is bringing a new digital bank to Australia in partnership with the UK’s Starling Bank.

But AMP has also issued a comment on outlook, and investors aren’t happy.

Shares were down more than 13 per cent to 88 cents in the second hour of trade today.

AMP’s deal with Starling Bank is, on the face of it, a sensible move. Starling has gone from a challenger start-up bank to an established firm in the last ten years.

But buried under management comment in today’s release from AMP was a paragraph on the FY24 outlook.

Macro and micro pressure

“[Net interest margins] NIM will continue to be under pressure in FY24”, the bank wrote, but expects “lower funding costs as a result of this initiative.”

AMP is trying to shake off a bad reputation developed in the recent past.

The company has been hit with workplace sex scandals, and in 2022 the company was stung for making customers pay fees for no reason.

Then came the big one in 2023 – AMP was fined in court for charging insurance payments to dead customers.

It makes sense AMP is looking for new cash inflows – but Starling has a questionable reputation in that department, too.

More on that shortly.

Starling run-down

This partnership with Starling will allow AMP to navigate the technicalities of establishing an Australian digital bank.

Specifically, AMP will work with Starling subsidiary Engine, a software-as-a-service (SaaS) provider.

This implies AMP will be making regular payments to Engine. But it needs the latter’s expertise to fulfil its market offering.

“There are clear parallels between the banking markets in Australia and the UK, and we look forward to leveraging Engine’s expertise and technology for AMP customers,” Engine by Starling CEO Sam Everington said.

Aimed at small businesses, AMP wants to establish a digital bank division “built specifically for the transaction needs of sole traders and small business.”

The investment is expected to cost $60 million over FY24 and FY25 and won’t actually make AMP any profit until 2027.

The digital bank will be live by Q1 2025.

Starling controversy

AMP noted the next step of its bank strategy is to build deposits – and it appears a small-business-facing digital bank could help facilitate that.

But Starling is not without its own controversies.

The bank took on more than 200,000 new customers during the COVID years, growing its base to well over 300,000.

However, the bank only ever employed less than 1300 people – so whether or not customer background checks were conducted is dubious.

Former UK politicians have accused Starling of ignoring anti-money-laundering and anti-criminality rules to provide accounts to anybody who asked.

Starling then issued out government taxpayer-backed COVID-era special loans to thousands upon thousands of people.

The general thrust of the charge against Starling from its critics runs that the bank broke the rules for its own gain and risked wasting taxpayer money while doing so by failing to examine where those loans were going.

CEO out the door

Starling’s Founding CEO Anne Boden also stepped down earlier this year, but cited conflict of interest concerns, given the CEO was a major shareholder.

Whatever the specific cause for shareholder disdain, the move will be a further blow to AMP loyalists.

The ASX-listed company’s shareholders are currently lamenting one-year returns currently reflect a drop of 30.24 per cent.

The year-to-date performance sees AMP down 32.89 per cent.

AMP shareholder reactions to Australia’s leading share platform Hot Copper were mixed.

Multiple identified that the deal could be beneficial, but some users expressed that 2027 is too wait too long for something to become profitable.

AMP shares last traded at 87.5 cents.

AMP by the numbers
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