Knives out for IOOF board

IOOF’s biggest shareholder has called for a board spill after APRA took legal ­action aimed at turfing out its chief.

IOOF managing director Christopher Kelaher. Picture: AAP

IOOF’s biggest shareholder, fund manager Martin Currie, has called for the stricken wealth manager’s board and management to be turned over after the prudential regulator yesterday took legal ­action aimed at turfing cand other executives out of the super­annuation ­industry.

In a day of disaster for IOOF, its share price plunged 35 per cent to $4.60, wiping $900 million off its market value, after APRA told the Federal Court that Mr Kelaher, chairman George Venardos, CFO David Coulter, company secretary Andrew Vine and general counsel Gary Riordan were not fit and proper people to run a superannuation company.

The move by APRA, which also wants to impose sweeping new licence conditions on the company, all but killed off ANZ’s sale to IOOF of the bank’s OnePath super business, which controls the fortunes of about 700,000 retirement savers.

IOOF chairman George Venardos

It follows months of pummelling for IOOF on the market after Mr Kelaher’s disastrous August financial services royal commission outing, during which he appeared to dismiss both APRA’s allegations the company failed to properly compensate customers who were victims of its mistakes and the regulator’s concerns at its bad attitude towards fixing problems including deep conflicts of interest.

Yesterday, as investors fled, class action law firms circled and analysts predicted tumbling profits, IOOF’s executives resisted growing calls for them to step aside, vowing instead to defend a lawsuit the company said was disappointing and “misconceived”.

Reece Birtles, the chief investment officer of Martin Currie, which saw almost $70m wiped from the value of its 7.55 per cent stake in IOOF by yesterday’s rout, said it was “disappointing that IOOF have been unable to manage relations with a key regulator that has led APRA to take action against executives and directors”.

“The materiality of the underlying transgressions remains unclear, but clearly APRA’s view of IOOF’s acceptance and responsiveness has reached the point where the IOOF board needs to make material change to the board and management and comply with APRA’s managed action plan,” Mr Birtles said.

“This is a necessary step in the interests of all stakeholders to place IOOF on a sustainable course.”

The move isolated IOOF’s second-biggest shareholder, Nikko Asset Management, which also lost about $70m on its investment yesterday, but declined to say whether it would support Martin Currie’s call for renewal.

In a concise statement filed with the Federal Court, APRA slammed IOOF for having a conflicted structure where companies within it were both trustees of super funds that were responsible for looking after the interests of members and at the same time earned revenue for the group by running investment funds into which the same super savers were tipped. It took aim at IOOF, Mr Kelaher and other executives over three incidents, dating as far back as 2007, in which the company compensated savers for its errors using their own money, and attacked it and Mr Kelaher for refusing Optus’s request to transfer employee super to AMP in 2005 without considering whether it was in the best interests of fund members to do so.

There are no allegations made against former IOOF chairman Roger Sexton, who was chairman until 2015. He did not respond to an email requesting comment.

Separately, APRA has written to IOOF giving the company 14 days to explain why it should not be shackled by onerous new licence conditions in a letter that cites an EY review that found 10 breaches or potential breaches of prudential standards and the Superannuation Industry (Supervision) Act.

The existence of the EY review, which was commissioned after a request by APRA last year and delivered to IOOF in September, was revealed by Mr Venardos at the company’s annual meeting on November 28.

However, Mr Venardos did not tell the market EY had discovered any breaches, instead saying the consultants “noted the substantial investment that IOOF has made in the management of conflicts of interest”.

APRA deputy chairwoman Helen Rowell criticised IOOF for failing to make enough progress to fix its woes.

“APRA’s efforts to resolve its concerns with IOOF have been frustrated by a disappointing level of acceptance and responsiveness to the issues raised by APRA, which is not the behaviour we expect from an APRA-regulated entity,” she said.

ANZ deputy chief executive Alexis George said the bank had a “framework” under which it could bypass IOOF and go ahead with separating its pensions business from its life insurance business: “Given the significance of APRA’s action, we will assess the various options available to us while we seek urgent information from both IOOF and APRA.”

Prior to APRA launching action against IOOF, the OnePath trustee board was due to vote on the deal in February.

Credit Suisse analyst Andrew Adams said he expected a 25 per cent cut in IOOF’s core earnings, as he factored in the shelving of ANZ’s wealth transaction and other knock-on effects from the APRA action.

“There will likely be flow-on effects to the rest of the IFL (IOOF) business during this process which could easily persist for 12 months,” Mr Adams said.

Phi Finney McDonald managing director and experienced class action litigator Ben Phi told The Weekend Australian his firm was already “looking into” launching a shareholder class action following a disastrous performance by Mr Kelaher at the banking royal commission in August.

“The matters that were raised at the royal commission were pretty profound, but APRA’s action adds a new dimension to it,” Mr Phi said.

Shine Lawyers is also considering a class action against IOOF. “We welcome APRA’s actions against IOOF and we will look closely at what the regulator has to say about alleged misconduct by IOOF,” class action special counsel Craig Allsopp said.