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State Street Agrees to Pay $94.3M for Overcharging Customers

Zacks Equity Research

On Thursday, as part of a settlement reached with regulators, State Street Corporation STT agreed to pay $94.3 million for overcharging mutual fund customers and other clients consistently through concealed markups on back-office expenses since around 17 years. Notably, the settlement was agreed upon with the U.S. Securities and Exchange Commission (SEC), and Massachusetts Attorney General Maura Healey.

The settlement resolved allegations on State Street for overbilling its customers, exceeding $170 million in relation to custody of their assets. "We regret these invoicing errors and the impact on our clients," the company said in a statement.

Allegations & Settlements

Per the SEC, State Street was accused of overcharging clients on markups for transferring messages through SWIFT, which is a secured international payments network used by banks and other financial companies. Notably, around 5,000 clients paid more than $110 million as the overcharged amount.

“Fund expenses make a big difference to mutual fund investors and advisers,” Paul Levenson, director of the SEC office in Boston, said in a statement. He added, “They have a right to receive honest information about what they're paying for.”

Therefore, State Street’s charges include $40-million civil fine, and $48.8 million of disgorgement and interest in the SEC settlement along with a $5.5-million civil fine to Massachusetts.

Though the bank did not admit or deny any wrongdoing, it was appreciated by the SEC for its cooperation. However, the settlement would be met by the bank’s existing reserves.

Notably, since 2015, State Street started reviewing customer invoices, which resulted in reimbursing most customers who have been overcharged, and also improved the bank’s billing processes. It is also cooperating with the U.S. Department of Justice's civil and criminal divisions, which are investigating the invoices of State Street.

In July 2016, financial regulators made State Street pay nearly $530 million to customers, who were overcharged on foreign currency transactions.

Conclusion

Banks across the globe have been facing increasing scrutiny for their business practices. Many of these firms paid billions of dollars as fines and compensation to settle lawsuits and probes. Many investors lost their hard-earned money as a result of such business malpractices. Encouragingly, such settlements help restore investors’ confidence in banks and their operations.

Shares of State Street have lost around 12.3% over the past six months against nearly 11.6% growth recorded by the industry. The stock currently carries a Zacks Rank #5 (Strong Sell).

 


Some Better-Ranked Stocks to Consider

M&T Bank Corporation MTB has been witnessing upward estimate revisions for the past 60 days. Additionally, the stock has gained more than 19% in the past six months. It currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

BankUnited, Inc. BKU has been witnessing upward estimate revisions for the past 60 days. Also, the company’s shares have risen nearly 10.3% in the past six months. It has a Zacks Rank #2 at present.

First Business Financial Services, Inc. FBIZ has been witnessing upward estimate revisions for the past 60 days. In six months’ time, this Zacks #2 Ranked company’s share price moved up more than 10%.

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