Question

What is the current price of ordinary / common shares in AMP? How has the price evolved over the past 5-years? Graph the series and discuss its evolution, noting the salient points.

$5.00 $2.50 0.00 2015 2016 2017 2018 2019

In 2018 there was Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry. How, in your opinion, did the inquiry affect systematic risk and unsystematic risk in relation to AMP? Did items of news reported from the Royal Commission move the share prices of AMP? Discuss.

Answer 1

The current price of share of AMP is 2.19AUD

Change in share price of AMP

If we see the past history of the AMP share price it is required to understand the growth rate of earning which was negative. The growth rate is shown below for the last five years:

In the year 2014 the growth rate was ‐23.1%

In the year 2015 the growth rate was 22.4%

In the year 2016 the growth rate was ‐96.7%

In the year 2017 the growth rate was 9.1%

In the year 2018 the growth rate was 9.1%

Just before the beginning of the last five years the share price of AMP was around $9 however, at present it is less than $4. Such declining in the stock price of AMP produces a loss of 45%. When the news of scandal brought into the limelight at the royal commission such news likely to cause drastic fall in share price.

In the last few months it is observed that the share price has been dropped around 10.7% lower to $2.16 which leads to eliminate a substantial amount from its market value i.e. more than $7 million. The investors are now worried to hold the stock of this organization as price of the share falls drastically together with decreased profits and dividend. Anyhow, since AMP is one of the best brand in the banking sector the shareholders has been trying to cope with the situation of this organization. Although in the last few years revenue is moved up by 2.5%, yet it is not competitive in the market.

If we see the past record of total shareholder return which is ‐56% it reveals that it surpasses the result of share price return. The data of total shareholder return is more comprehensive than the share price return as the latter only reveals the reflection of the difference in share price. The under performance of the share in comparison with the performance of the market may create some unresolved situation that may lead to create annualized loss which actually happens to share price of AMP.

The drop of the share price over few years made the organization to build up some strategic plan that enables the long term shareholders to be benefitted.

• To dispose of those segments where growth rate is lower
• To invest into those sectors having steady growth in the market

Systematic risk

It is called an external risk which is likely to happen if there is any change takes place politically, economically or socially. Such type of change impact on the price of the share and thus security return gets affected. There are basically three types of systematic risk

• Interest rate risk
• Market risk
• Purchasing power risk

  

         Unsystematic Risk

       This type of risk occurs internally and can be nullified through diversification. it happens in a firm either malfunction in the operation level or if the firm choose wrong financial policy.

The impact of systematic and unsystematic risk relating to the following matter

Royal Commission into misconduct in the banking

The Royal commission was recommended by the Parliament inquiry commission of Australia to inquire into relating to misconduct in the banking and accordingly some instructions are imposed on NAB (National Australia Bank).

One such order is to withhold the payment to those members who refer those customers who are supposed to receive home loan from the bank.

Since it is an imposition from the part of Government so it is an external risk called systematic risk which can impact the change in share price.

Another decision of the commission is to levy on the financial institutions to support those people who are exploited or cheated financially by these financial institutions.

This incident also creates systematic risk as the imposition of the order is external.

Although in case of AMP the above stated two misconducts have not been observed. These incidents are happened relating to other financial organization. Although AMP is controlled under NAB. So when the order is imposed on NAB definitely such imposition is also effective for AMP also. Since AMP is not involved with such misconduct the share price may not perform badly however, some impact for this restriction may fall in the share price as it occurs due to the presence of systematic risk