IRB restates 2019 net income, cuts it by 31% due to accounting irregularities

SAO PAULO (Reuters) - IRB Brasil Resseguros IRBR3.SA has restated its 2019 financial statements to correct accounting irregularities, reducing its net income for the year by 31% to 1.2 billion reais ($220 million), the Brazilian reinsurer said on Tuesday.

The reinsurer admitted to accounting irregularities and its compliance vice-president Wilson Toneto said the company will sue former executives for damages. The conclusions of internal investigations will be sent to Brazilian securities industry watchdog CVM, the company said.

IRB will take time and persistence to recover the company’s reputation with investors, its new Chief Executive Officer Antonio Cassio dos Santos said during a conference call to discuss the restatements.

Shares in IRB were up 0.8% at 12.56 reais, after trading down 5.5% during earlier trading in Sao Paulo.

Last week, IRB said it had found payments of irregular bonuses to former executives and identified the sources of false information leaked to the press about the participation of Berkshire Hathaway in the reinsurer.

Accounting irregularities were first pointed out in February by investment firm Squadra Investments, which shorted the stock.

The reinsurer also said it had hired the investment banks of Banco Bradesco SA and Itau Unibanco Holding SA to work on raising capital to comply with higher provisions requested by insurance regulator Susep. Chief Financial Officer Werner Suffert said he expects to have the capital raise concluded by September.

In a note to clients, Credit Suisse analysts said net income for the first quarter of 2020 of only 14 million reais was 92% below the same period a year earlier, with deceleration of growth.

The company’s book value was reduced by almost 700 million reais to 3.6 billion reais. The reduction was due mainly to the buy-back of IRB shares in March for an average price of 34.51 reais and its subsequent 70% drop.

Reporting by Tatiana Bautzer and Aluisio Alves, additional reporting by Paula Laier, editing by Jason Neely and Bernadette Baum