Western Union Co., the world’s biggest money-transfer business, plunged the most in a year after saying costs tied to regulatory compliance will prevent operating profit from rising next year.
The shares were today’s worst performer in the Standard & Poor’s 500 Index, falling as much as 19 percent to $15.51 before paring losses to trade at $16.35 as of 10:05 a.m. in New York. The stock climbed 41 percent this year through yesterday.
Western Union, which also posted a 20 percent drop in third-quarter profit, plans to invest worldwide to comply with new and existing regulations, Chief Executive Officer Hikmet Ersek, 53, said yesterday on a conference call with analysts after announcing the results. Operating profit isn’t expected to increase next year as a result of these costs, he said.
“While we commend Western Union for disclosing this now rather than next year, we acknowledge tolerance for another investment year is low,” Tien-tsin Huang, a JPMorgan Chase & Co. analyst, said today in a note. “We would avoid the stock.”
Net income for the three months ended Sept. 30 fell to $214.4 million, or 39 cents a share, from $269.5 million, or 45 cents, a year earlier, the Englewood, Colorado-based company said yesterday in a statement. That beat the 36-cent average estimate of 28 analysts surveyed by Bloomberg.
While Western Union’s compliance costs comprised 2.5 percent of revenue this year, that may climb to 3.5 percent to 4.5 percent in 2014, the company said.
“Based on all these new and evolving requirements, our ongoing discussions and agreements with regulators around the world and our own reviews, we now anticipate significant additional investment in 2014, including adding more resources and new technology,” Ersek said.
Western Union, which operates in 200 countries, said it will upgrade its infrastructure to comply with regulations in the U.S., Europe, Asia and Latin America. The firm’s compliance costs will include spending on “know your customer” initiatives intended to prevent fraud, the company said. Expenses will include some one-time items as well as longer-term investments to mitigate future costs, the firm said.