Shareholders in IOOF Holdings Limited (ASX: IFL) better hang on tight as the IFL share price is taking another hit this morning.
IOOF's share price crashed 5.2% to $4.36 in early trade after the wealth and superannuation manager announced its chairman George Venardos and chief executive Christopher Kelaher were stepping down immediately in response to the court action brought on by APRA on Friday.
This makes the IOOF share price the second worst performer on the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index at the time of writing with the Inghams Group Ltd (ASX: ING) share price shedding more than 7%.
But don't expect the shake-up in IOOF's senior ranks to stem the bloodletting even after the IOOF share price crashed 36% on Friday.
Management Shuffle
The company said that non-executive director Allan Griffiths will become its acting chair while Renato Mota, currently the Group General Manager – Wealth Management, will be the acting CEO.
Three other senior executives targeted by APRA – Chief Financial Officer David Coulter, Company Secretary Paul Vine and General Counsel Gary Riordan will remain in their positions – although IOOF said they won't have any responsibilities in managing IOOF trustee companies and will have no contact with APRA.
Both Venardos and Kelaher will be on leave to focus on defending themselves against the actions brought on by the financial regulator but it's hard to see them returning given that their relationship with APRA is so fractured.
IOOF vs. APRA
Acting chair Griffiths is defiant – calling the allegations made by APRA as "misconceived" as he pointed out that IOOF has implemented most of the remedial action demanded by APRA and the group's strong financial results in FY18.
The arguments won't cut as IOOF is likely to suffer a long and painful de-rating that the AMP Limited (ASX: AMP) share price is experiencing.
APRA's action should also make shareholders in National Australia Bank Ltd. (ASX: NAB) nervous as its chair Ken Henry used a similar tone during the Hayne Royal Commission as IOOF's Kelaher took a combative stance and claimed superannuation governance issues were a "matter of indifference" to him.
That may have forced APRA to take more forceful stance against IOOF.
Path of Least Resistance
There are three reasons why IOOF's shares are likely to fall further and become a hot favourite among short-sellers.
The first is that APRA wants to make IOOF the whipping boy and the regulator has lots to prove as it comes under increasing pressure for not doing enough in the past to protect the public interest.
The second is the likely termination of the acquisition of Australia and New Zealand Banking Group's (ASX: ANZ) wealth business by IOOF.
The transaction would have given IOOF a big earnings boost but the deal is in jeopardy as I can't see how the trustees of ANZ's OnePath superannuation business can support the deal in light of the damning APRA allegations.
Thirdly, most of the old mob in IOOF are still around (and the promotions are from its existing management ranks). If there is a need for cultural change, the change agent will need to come from outside the company.
This means a further shake-up in IOOF's management ranks and that will lead to more share price instability.
Finally, we are likely to see a further wave of class actions brought against the group and this can cloud the outlook for IOOF for a while yet.
Don't listen to the valuation argument that IOOF bulls may use as valuation becomes irrelevant when a company is being de-rated due to significant governance issues.
