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UPDATE 3-AMP posts largest annual loss since 2003, increases CEO bonus

* AMP reports A$2.47 bln loss, shares fall 3.3%

* Wealth management business sees A$6.3 billion in outflows

* Outflows expected to continue in FY20 (Adds CEO comments to reporters in call, share reaction, analyst impressions)

Feb 13 (Reuters) - Australia’s AMP Ltd posted its biggest annual loss in 17 years on Thursday, but approved a whopping increase in its chief executive’s potential short-term bonus if he exceeds targets set for him.

Hurt by an accelerating exodus of clients following revelations of widespread misconduct, AMP also forecast a 20% drop in full-year operating earnings in its domestic wealth management unit.

The business, AMP’s largest, reported net cash outflows of A$6.3 billion ($4.2 billion) for 2019, 57% higher than the A$4 billion lost a year earlier.

Still, the company increased Chief Executive Officer Francesco De Ferrari’s short-term incentive to 200% of his base salary from 120%.

The new terms of the bonus pay structure, which becomes effective this calendar year, replace the current terms set when De Ferrari was named to the role in August 2018.

Initial impressions of the result were weak, Macquarie analysts said, particularly considering the scandal-hit group expect to report softer full-year earnings from its main business.

AMP shares were 3.3% lower in morning trading after the result, while the broader market was 0.6% higher.

The company said the net cash outflows from the Australian wealth management unit were likely to persist in fiscal 2020.

“Clearly if you look at the number of cash outflows that we are reporting I am not happy and we can’t be satisfied as a company,” De Ferrari told reporters on a call.

“As we start to execute and deliver the strategy this will over time turn around the cash flows.”

The 170-year-old company is restructuring and trying to restore its reputation after a public inquiry revealed it had charged life insurance premiums to dead customers and attempted to mislead regulators.

AMP cut 440 financial advisers in 2019 and merged its banking and Australian wealth management units. The company reported an annual loss of A$2.47 billion, compared with a profit of A$28 million a year earlier.

“There is going to be a lot of work ahead of the CEO to make sure he hits every single benchmark on that salary,” said Ashley Glover, head of sales trading APAC and Canada at CMC Markets.

“It is a show of faith, and there is a great reward at the end of it.”

Barring one-off costs, AMP’s underlying net profit was A$464 million, down from A$680 million recorded a year ago.

Operating earnings at AMP Capital, its funds management unit, were up 18% to A$198 million.

$1 = 1.4850 Australian dollars $1 = 1.4894 Australian dollars Reporting by Paulina Duran in Sydney, Shreya Mariam Job and Aby Jose Koilparambil and additional reporting by Sameer Manekar in Bengaluru; Editing by Shailesh Kuber, Bernard Orr

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