State Street fined £23m for “can of worms”
Saturday 01 February 2014
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.”
- 2 Harry Potter fans can apply to the Hogwarts-inspired College of Wizardry
- 3 Jessica Chambers: 19-year-old woman 'doused with lighter fluid and burned alive' in the US
- 4 Russell Brand calls Nigel Farage 'poundshop Enoch Powell' in BBC Question Time debate
- 5 Orange Wednesdays are no more
Weather bomb in pictures: Storms cuts power for tens of thousands – and snow is on the way
Jessica Chambers: 19-year-old woman 'doused with lighter fluid and burned alive' in the US
Russell Brand calls Nigel Farage 'poundshop Enoch Powell' in BBC Question Time debate
Russell Brand was rendered speechless on Question Time by this man
Fury at Airbus after it hints the super-jumbo may be mothballed
Disgruntled RBS worker writes hilarious open letter to Russell Brand after anti-capitalist publicity stunt leaves him hungry
Shock poll shows voters believe Ukip is to the left of the Tories
Nigel Farage's approval rating hits 'record low' as popularity suffers in wake of Ukip sex scandal
Ukip candidate jokes about 'shooting peasants' in racist and homophobic rant
Pakistan school attack live: Taliban kill at least 132 children in 'horrifying' massacre
Sony hack: Angelina Jolie branded 'seriously out of her mind' in further embarrassing leaked email saga
iJobs Money & Business
Up to £70,000 per annum + benefits: Sheridan Maine: Are you a qualified accoun...
Up to £65,000 per annum + benefits: Sheridan Maine: Are you a qualified accoun...
£32000 - £35000 per annum + benefits: Ashdown Group: Marketing Services Manage...
£Neg. (DOE) + Excellent Benefits: Guru Careers: A Finance Account Manager with...