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AMP profit down in volatile global markets -

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AMP profit down in volatile global markets

The World Today - Thursday, 28 August , 2008 12:22:00

Reporter: Peter Ryan

ELEANOR HALL: The investment giant AMP is the latest company to be rocked by the global economic
crisis. The financial services firm today reported a big fall in its half year profit, down more
than 20 per cent to $366-million.

And although AMP's share price has plunged 36 per cent this year, its chief executive says the
company remains "resilient", as Business editor Peter Ryan reports.

PETER RYAN: AMP is Australia's biggest provider of superannuation plans. Most people or their
parents or grandparents have held an AMP policy over the years.

But these days AMP calls itself a financial services company with a growing focus on wealth
management. That means exposure to the share market in the good times and losses when the market
falls.

CRAIG DUNN: AMP has delivered a solid operating result in a tough environment. We remain
strategically well positioned in attractive markets, with a resilient, high quality business model.

PETER RYAN: AMP's chief executive Craig Dunn was putting the best complexion on some poor half year
results, countering a 22 per cent plunge in profit with reassuring words for investors.

CRAIG DUNN: A disciplined approach to cost and capital management in recent years has put us in a
very strong position to navigate through these more challenging times and we are focused on further
enhancing that financial strength with a continued prudent approach to capital management and a
preference in the current market to hold more capital than less.

PETER RYAN: AMP joins other local investment and insurance companies - most recently Suncorp-Metway
and Perpetual - which have become victims of tumbling global share markets.

Not surprisingly, investors have one key question: What is AMP's exposure to risky investments and
debt instruments that have brought other companies undone through links to the sub-prime mortgage
crisis in the United States?

Craig Dunn says there are none worth mentioning.

CRAIG DUNN: On an investment portfolio of over $100-billion, they're quite immaterial. And I'd also
make the point that it's all investment grade and 84 per cent of it is rated AA or higher. And if
you look at the CDO portfolio, that is predominantly backed by Australian corporate loans
originated by major banks. And over 90 per cent of that is still rated AAA.

PETER RYAN: AMP has taken a steady-as-she goes approach despite the value of assets under
management falling nine per cent in the half to $117-billion.

But the company is hurting from higher interest rates and spiralling food prices. Craig Dunn says
superannuation contributions for example have been pushed into the category of optional extras.

CRAIG DUNN: Discretionary contributions have really fallen away and our understanding is that's
true of the whole market.

Interestingly and importantly, the mandated or employer contributions have held up and are largely
the same half on half. We're fortunate with our corporate super business that we have a very
significant exposure and probably more than most, and for that reason those flows didn't come off
as much as the discretionary contributions.

PETER RYAN: So if interest rates do come down on Tuesday, would you see that as perhaps being some
relief that would see those discretionary contributions trending up again?

CRAIG DUNN: Investors I think will need to see stock markets climb again and do that for a
sustained period before confidence will return. I expect given that environment and not
withstanding a potential cut in interest rates in the short term, it is going to take a while for
that confidence to return.

PETER RYAN: Craig Dunn also acknowledged the scrutiny being placed on fees and commissions paid to
retail superannuation advisers, in the face of the worst super returns in 20 years.

He says heat from the industry superannuation sector and the Federal Government will inevitably
push fees down.

CRAIG DUNN: We expect fees in our contemporary wealth management business to fall by about two to
three per cent per annum over time, so it is a competitive market.

Having said that, one of the benefits we have as a business is we have very low cost ratios, so if
there is greater pressure on fees over time, which you'd expect, the benefit in our business is,
because of those low cost ratios, we're more able to withstand that pressure than others in the
market.

PETER RYAN: Despite writing down investments of $49-million and setting aside $41-million to cover
fixed income investments, the market appeared happy. AMP shares rose more than four per cent after
the announcement thanks to the soothing and conservative approach in choppy financial markets.

ELEANOR HALL: Business editor Peter Ryan.