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The case against State Street

Over the past two years the US custodian has lost money and reputation. The search is on for new fee revenue to support the industry colossus that the bank has become.

Legal action against State Street

What State Street says...

The bank was at the forefront of custody’s metamorphosis from sleepy backwater to active asset management industry, but the past couple of years have exposed sloppy investment practices that have cost both money and reputation. The search is on for new fee revenue to support the colossus the bank has become. Louise Bowman reports.

IF ONE LESSON should be learned from the financial crisis of recent years it is this: understand counterparty risk. If you are on the other side of the table from an entity that has nearly $19 trillion of assets under custody and nearly $2 trillion of assets under management, it is important to understand exactly what the risk is. That counterparty is State Street, the Boston-based custody market colossus and subject of growing speculation as to whether its size and reach represent a risk that the wider market should now be worried about.

State Street has grown rapidly in recent years, expanding its investment management businesses on the back of its entrenched investment servicing franchise. But the financial crisis has exposed cracks in the corporate facade that risk inflicting lasting damage. The bank is now being sued in its investment management, collateral management and foreign exchange activities both for sloppy risk management and for alleged outright fraud.