IOOF shares fell off the proverbial cliff yesterday morning as the market reacted to a series of negative articles published in the Fairfax press over the weekend.
Fairfax alleged IOOF failed to report one of its senior staff members to ASIC after an internal investigation revealed insider trading in 2009.
The articles also claimed IOOF employees engaged in front running and misrepresentation of its performance numbers.
The company’s shares had fallen by as much as 20 per cent mid-Monday morning, from Friday’s close of $10.64 to a low of $8.44 at 11am on Monday.
But after the initial plunge IOOF’s shares rose steadily for the rest of the trading day, finishing 13 per cent lower.
Morningstar equities analyst Nathan Zaia published a note on Monday afternoon arguing that despite a risk to IOOF’s brand, Morningstar’s take on the financial services company is unchanged.
“At this stage, we make no changes to any key data points and after the sharp sell-off, believe IOOF is undervalued,” Mr Zaia said.
“Unethical action of a handful of IOOF’s 1,100-odd planners and unit pricing errors may have occurred and may well reoccur, but as long as IOOF maintains a strong compliance track record and takes appropriate remedial action when necessary, this should not have a material impact on the business,” he said.
If IOOF were underinvesting in its products and services, competition would see customers and funds under management “walk out the door”, Mr Zaia said.
As a result, it is in the firm’s best interest to maintain a high level of customer satisfaction, he said.
“Evidence to date suggests IOOF has handled integration of acquisitions well, by not only retaining advisers/planners, but also customers, so claims of under-resourced teams are again difficult to quantify,” Mr Zaia said.
An IOOF statement released on Monday said none of the issues raised in the Fairfax articles would cause any loss to any IOOF client, “past or present”.
“Most of the claims appear to have been promoted by a former employee who is in a legal dispute with the company and are historic in nature,” IOOF said.
“All the issues raised, historic or recent, have been dealt with appropriately at the time; this includes, where relevant, thorough internal and board review, notifying industry regulators, ongoing review of compliance measures and controls, employee education and independent investigations.
“These initiatives have, where necessary, led to enhancement of processes and procedures and sought to improve the client experience,” IOOF said.
