State Street Corporation (STT), the third-largest U.S. custodial bank, has agreed to pay a total of $70 million in order to settle shareholder and employee lawsuits. Of the total, $60 million will be paid to resolve shareholders’ claims of inflating revenues by overcharging clients illegally for foreign-exchange services. The remaining $10 million will be expended to settle two lawsuits by employees who owned the company’s stock in their retirement accounts.
Notably, the currency services of the custodial banks such as State Street, The Bank of New York Mellon Corp. (BK) and JPMorgan Chase & Co. (JPM) are under investigation since the 2008 financial crisis. Both federal and state regulators along with the pension funds were increasingly suspicious about clients being overcharged.
The shareholder lawsuit accused State Street of charging unlawful markup on clients, which translated into huge revenues for the Boston-based bank. Again, the bank was sued for overcharges to the public pension funds – The California Public Employees’ Retirement System (CalPERS) and The California State Teachers’ Retirement System (CalSTRS). In fact, the shares of the bank plunged 8.4% on Oct 20, 2009, after the charges were pressed by the state of California.
Throughout the litigation process and even now, State Street has been denying the allegations against it. The settlement, according to the bank, was reached because it was unwilling to continue with the litigation hassles. Nevertheless, the settlement resolves an over four-year long legal battle, leaving investors appeased at the end.
State Street currently carries a Zacks Rank #3 (Hold). A better-ranked regional bank stock is Comerica Inc. (CMA), which holds a Zacks Rank #2 (Buy).