August 25, 2019 / 11:04 PM / 24 days ago

UPDATE 2-Australia's IOOF profit hit by remediation charges, shares plunge

* IOOF posts 67% drop in statutory profit, cuts dividend

* Hit by A$183 mln bill to compensate customers

* Shares drop to 8-month low (Adds detail on outlook, shares, CEO comment)

By Paulina Duran

SYDNEY, Aug 26 (Reuters) - Australian wealth manager IOOF Holdings Ltd posted a sharp fall in statutory earnings and slashed its dividend on Monday, hurt by a much bigger bill than flagged for compensating wronged customers, and warned of a challenging outlook.

Its shares sank as much as 11% to an 8-month low.

The country’s second largest network of financial advisers raised its remediation bill to A$235 million ($159 million) from a previous estimate of about A$40 million, aiming to rebuild its brand following a landmark inquiry into wrongdoing at financial institutions last year.

“It’s been a tough 12 months for anybody associated with IOOF,” Renato Mota told investors on a conference call.

“I am committed to ensuring we learn from the past.”

IOOF said it had now provisioned for A$182.7 million in remediation costs related to incidences of fees for no service, inadequate documentation and inappropriate advice.

In the 2019 financial year, it also spent A$40.4 million on checking documentation for inadequate and inappropriate advice as well as A$12.1 million on remediation for loss-making products.

The higher charges sent statutory profit down 67% to A$28.6 million for the year ended June 30 from A$88.3 million a year earlier.

The announcement knocked its shares down 11% to A$4.61, their lowest since Dec. 21. They partly recovered to be down 7% by early afternoon.

The company declared a final dividend of 12 cents per share plus a special dividend of 7 cents, bringing its annual total dividend payment to 44.5 cents, down 18% from a year earlier, the company said.

The company warned that higher governance costs, increased competition, as well as regulatory changes aimed at lowering advisory fees would impact earnings by about A$30 million in 2020.

“I don’t doubt that there will be challenging times ahead for advice, and we are committed to see the journey through,” Mota said.

IOOF has faced intense regulatory scrutiny ever since the pension fund regulator sent the company notices warning that three subsidiaries were not in compliance with their licence conditions.

Mota was anointed chief executive in June after six months in the role on an acting basis after his predecessor stepped aside to fight a ban by the country’s prudential regulator.

The Australian Prudential Regulation Authority (APRA) alleged that IOOF used pension customers’ funds to compensate investors for losses caused by the company, and also sought to disqualify several top executives of the company. ($1 = 1.4806 Australian dollars) (Reporting by Paulina Duran in Sydney; Additional reporting by Aby Jose Koilparambil in Bengaluru; Editing by Peter Cooney and Sonali Paul)

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