The Distillery: All said and Dunn

Scribes praise Craig Dunn’s record at AMP but say the time is right for new leadership, and warn of challenges ahead for Craig Meller.

AMP boss Craig Dunn is leaving the financial giant with the utmost respect from business commentators, who simply have to point out the recent earnings downgrade was a shock not befitting of his record. His replacement, Craig Meller, doesn’t just have to fix these problems but also prepare AMP for its next evolutionary step.

The Australian’s John Durie says credit needs to be given to AMP chairman Peter Mason for orchestrating a changeover between the respected Dunn to Meller that’s occurred without issue.

“Dunn is a class act and with little fanfare has guided AMP through the global financial crisis, the AXA acquisition and integration, and most recently the flurry of regulatory change under the MySuper regime. On all fronts AMP has emerged as a stronger competitor, but Meller's challenge will be to boost momentum and face down the inevitable competitive attacks from the big banks and technology. Dunn had always planned to leave after five years so has done one more year than he wanted. But his willingness to step aside is a welcome acknowledgment that too long in the job is potentially dangerous for the chief executive and the organisation.”

The Australian Financial Review’s Michael Smith is similarly full of praise for the departing AMP chief.

“Dunn has achieved a lot in his six years managing AMP through the financial crisis and overseeing the $14 billion acquisition of AXA Asia Pacific’s Australian operations. The company is now at a crossroads as it completes the AXA integration and prepares for a swathe of regulatory and technological change. Despite his achievements, a shock first-half earnings downgrade in June had investors questioning how long Dunn would stay in the job. They were not unhappy with his past performance but were correctly speculating whether it was time to think about bringing in someone else to lead AMP through the next phase of its evolution.”

As Fairfax’s Elizabeth Knight explains, mending that income protection business that suffered a 52 per cent fall in operating earnings will be a priority for the new boss, but not the only priority.

“It is a tale that has been well documented by the company and, thanks to a profit downgrade in June, was well anticipated by the market. One part of Meller's immediate remit will be to fix this part of the business, but it will not be his most important job. Sure, he will need to provide AMP with a steady and reliable hand. But he will also be charged with getting ahead of the innovation curve, in order to deal with the structural challenges that will inevitably hit the wealth management industry.”

Business Spectator’s Stephen Bartholomeusz says the income protection business problems will end up being a “blemish” rather than a “blight” on Dunn’s record.

“AMP’s statutory earnings were up from $373 million to $393 million in the half and on an underlying basis the fall from $488 million to $440 million wasn’t as steep as the market anticipated. AMP shares were up 3.5 per cent as a consequence. Particularly impressive was the increase in the Australian financial services wealth management earnings, from $164 million to $196 million, a result driven by strong cash flows and growth in assets under management. The North platform acquired with AXA (and the subject of much focus from the ACCC) nearly trebled its cash inflows from $636 million to $1.86 billion in the half. AMP is solidly profitable, well-capitalised (with $1.7 billion of capital above the minimum regulatory requirements) well-managed and looking for another structural reduction in an already tightly-controlled cost base.”

The Australian Financial Review’s Chanticleer columnist Tony Boyd reports that some analysts were questioning why Meller was making such a big deal of cost cuts when that’s really management 101 in 2013.

“Meller’s promise to cut $200 million over three years, at a cost of $320 million in one-off costs, follows hard on the heels of Dunn’s $150 million cost-cutting following the merger with AXA Asia Pacific’s Australian and New Zealand operations two years ago. Meller’s cuts will have significant implications beyond the bounds of AMP. About $40 million of the savings will be borne by third party providers including fund managers competing with AMP Capital. That raises ethical questions because of the potential for conflict of interest. Several of the big four banks have been doing this for years. They have handed funds management contracts to their own wholly owned funds management subsidiaries.”

The other big story of the day was the 44 per cent slide in earnings at Wesfarmers’s budget department store Target. Fairfax’s Malcolm Maiden says the size of the drop means Wesfarmers is in for many years of restoration.

Fairfax’s Tim Colebatch has the latest numbers on Australian wages and the disparities between industries and genders is still surprising.

The Australian’s Andrew White writes that the Sydney Airport ownership restructure might have strengthened it for the moment, but the political jostling over the potential for a second airport in the city means there will be some lingering uncertainty.

The Australian’s economics editor David Uren points out the many problems that derive from Prime Minister Kevin Rudd’s plan to slash the company tax rate for companies that are based in the Northern Territory but aren’t the big gas plants.

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