State Street fined £23m for “can of worms”

 

The UK arm of US financial services giant State Street has been fined £22.8m by the City regulator for overcharging institutional investors in a shocking case in which bankers were caught emailing each other incriminating messages like “this can of worms stays closed” when deciding not to notify their legal department.

The Financial Conduct Authority said State Street staff simply made up extra charges, which they felt that clients would accept, during 2010 and 2011.

On one occason, a banker who had clinched such a deal rejoiced with the message “back up the truck”, presumably meaning “fill it up with cash.”

The investigation lays bare the cynicism and greed of the bankers involved. The FCA found that State Street deliberately overcharged six institutional investors a total of $20.2m (£12.2m) over and above fees and commissions that had been agreed. The fine is the eighth-largest imposed by the regulator.

The FCA’s chief enforcer, Tracey McDermott, said State Street’s conduct had “fallen far short of our expectations”.

The offences took place in the transition management division, which carries out complex structural changes to portfolios on a client’s behalf, such as switching out of shares into bonds for a pension fund.

After the financial crisis in 2008, State Street enjoyed a booming business in transition management because many of its competitors pulled out of the market. But by 2010 the market had become far more competitive and managers made it clear they wanted not only to win more business but also to make it more profitable. They did that by levying hidden extra charges.

In one case a client wanted changes made to a €4.7bn (£3.9bn) portfolio. A series of emails between senior managers began: “Gotta win this one! Any ideas how to get more revenue would be appreciated.”

The reply said: “How about a 1bp [basis point] management fee or something... We need to charge fee then otherwise they get suspicious.” The response was: “Just to clarify – 1.25bp is the management fee. The extra quarter point makes it look like we actually thought about it and did the calculations.”

In another exchange, the executives discussed their own legal department.

“Did they [legal] look at the original agreement?” asks one.

“Absolutely not...” came the reply, “This can of worms stays closed! Btw – there is no way we can disclose our spread.”

State Street said: “In 2011, we dismissed individuals … involved in the overcharging. Their behaviour was unacceptable and a significant departure from the high standards of conduct and transparency that we expect.”

Start your day with The Independent, sign up for daily news emails
News
election 2015The 10 best quotes of the campaign
News
A caravan being used as a polling station in Ford near Salisbury, during the 2010 election
election 2015The Independent's guide to get you through polling day
News
people
Voices
David Blunkett joins the Labour candidate for Redcar Anna Turley on a campaigning visit last month
voicesWhat I learnt from my years in government, by the former Home Secretary David Blunkett
ebooks
ebooksA celebration of British elections
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Ashdown Group: Editor-in-chief - Financial Services - City, London

£60000 - £70000 per annum + benefits : Ashdown Group: A highly successful, glo...

Ashdown Group: Junior Application Support Analyst - Fluent German Speaker

£25000 - £30000 per annum + benefits: Ashdown Group: A global leader operating...

Guru Careers: Management Accountant

£27 - 35k + Bonus + Benefits: Guru Careers: A Management Accountant is needed ...

Guru Careers: Project Manager / Business Analyst

£40-50k + Benefits.: Guru Careers: A Project Manager / Business Analyst is nee...

Day In a Page

General Election 2015: ‘We will not sit down with Nicola Sturgeon’, says Ed Balls

'We will not sit down with Nicola Sturgeon'

In an exclusive interview, Ed Balls says he won't negotiate his first Budget with SNP MPs - even if Labour need their votes to secure its passage
VE Day 70th anniversary: How ordinary Britons celebrated the end of war in Europe

How ordinary Britons celebrated VE Day

Our perception of VE Day usually involves crowds of giddy Britons casting off the shackles of war with gay abandon. The truth was more nuanced
They came in with William Caxton's printing press, but typefaces still matter in the digital age

Typefaces still matter in the digital age

A new typeface once took years to create, now thousands are available at the click of a drop-down menu. So why do most of us still rely on the old classics, asks Meg Carter?
Discovery of 'missing link' between the two main life-forms on Earth could explain evolution of animals, say scientists

'Missing link' between Earth's two life-forms found

New microbial species tells us something about our dark past, say scientists
The Pan Am Experience is a 'flight' back to the 1970s that never takes off - at least, not literally

Pan Am Experience: A 'flight' back to the 70s

Tim Walker checks in and checks out a four-hour journey with a difference
Humans aren't alone in indulging in politics - it's everywhere in the animal world

Humans aren't alone in indulging in politics

Voting, mutual back-scratching, coups and charismatic leaders - it's everywhere in the animal world
Crisp sales are in decline - but this tasty trivia might tempt back the turncoats

Crisp sales are in decline

As a nation we're filling up on popcorn and pitta chips and forsaking their potato-based predecessors
Ronald McDonald the muse? Why Banksy, Ron English and Keith Coventry are lovin' Maccy D's

Ronald McDonald the muse

A new wave of artists is taking inspiration from the fast food chain
13 best picnic blankets

13 best picnic blankets

Dine al fresco without the grass stains and damp bottoms with something from our pick of picnic rugs
Barcelona 3 Bayern Munich 0 player ratings: Lionel Messi scores twice - but does he score highest in our ratings?

Barcelona vs Bayern Munich player ratings

Lionel Messi scores twice - but does he score highest in our ratings?
Martin Guptill: Explosive New Zealand batsman who sets the range for Kiwis' big guns

Explosive batsman who sets the range for Kiwis' big guns

Martin Guptill has smashed early runs for Derbyshire and tells Richard Edwards to expect more from the 'freakish' Brendon McCullum and his buoyant team during their tour of England
General Election 2015: Ed Miliband's unlikely journey from hapless geek to heart-throb

Miliband's unlikely journey from hapless geek to heart-throb

He was meant to be Labour's biggest handicap - but has become almost an asset
General Election 2015: A guide to the smaller parties, from the the National Health Action Party to the Church of the Militant Elvis Party

On the margins

From Militant Elvis to Women's Equality: a guide to the underdogs standing in the election
Amr Darrag: Ex-Muslim Brotherhood minister in exile still believes Egypt's military regime can be replaced with 'moderate' Islamic rule

'This is the battle of young Egypt for the future of our country'

Ex-Muslim Brotherhood minister Amr Darrag still believes the opposition can rid Egypt of its military regime and replace it with 'moderate' Islamic rule, he tells Robert Fisk
Why patients must rely less on doctors: Improving our own health is the 'blockbuster drug of the century'

Why patients must rely less on doctors

Improving our own health is the 'blockbuster drug of the century'