The royal commission final report is likely to further damage IOOF’s chances of acquiring ANZ’s OnePath business and recommend sweeping changes to the wealth management industry.
That’s the view of Morningstar analyst Chanaka Gunasekera, who commented on troubled wealth group IOOF after the company announced this week that it’s proposed acquisition of ANZ’s OnePath Pensions and Investments (P&I) business has been delayed.
While IOOF remains confident that the deal with go through by 1 July, Morningstar doubts the deal will succeed.
“Despite IOOF’s continued confidence, it will eventually be successful in acquiring ANZ Bank’s P&I business, we remain unconvinced,” Mr Gunasekera said.
“Given APRA’s unprecedented actions seeking declarations and disqualification orders against five of IOOF’s key officers as well as imposing additional licence conditions on IOOF, our base remains OnePath Custodians will not approve the successor fund transfer to IOOF related parties.
“Under these circumstances, we believe it will be difficult for the P&I trustee to conclude such a successor fund transfer in the best interest of members.
“Furthermore, we expect the financial service royal commission final report due 1 February is likely to further damage IOOF’s chances of the P&I trustee and ANZ Bank consenting to the acquisition.”
Morningstar has previously described IOOF’s appearance at the royal commission as “disastrous” and believes much of this will be covered in Commissioner Hayne’s final report. IOOF was slammed by Hayne and counsel assisting Michael Hodge over conflicts of interests and customer fees when it appeared before the inquiry in August last year. During the hearings it was revealed that IOOF has frequently been called out by the prudential regulator for governance and transparency issues.
However, the royal commission also revealed issues with APRA’s efforts in policing financial services institution.
“The prudential regulator, APRA, never went to court,” Commissioner Hayne wrote in his interim report.
“Much more often than not, when misconduct was revealed, little happened beyond apology from the entity, a drawn out remediation program and protracted negotiation with ASIC of a media release, an infringement notice, or an enforceable undertaking that acknowledged no more than that ASIC had reasonable ‘concerns’ about the entity’s conduct,” he said.
It is this criticism of APRA that Morningstar believes prompted the regulator’s “unprecedented” actions against IOOF in December 2018.
IOOF’s trading update this week explained that contract changes now provide that the coupon of 14.4 per cent per year on the debt note subscribed by IOOF in October 2018 will be extended until the completion of the successful fund transfer, now expected to happen by 1 July 2019.
“The successor fund transfer continues to be subject to OnePath Custodians consent to it and it is also subject to ANZ Bank’s consent to IOOF acquiring its P&I business,” Mr Gunasekera said
“The most likely outcome is that IOOF will not be successful in its proposed acquisition of ANZ’s P&I business,” he said.
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