California Public Employees’ Retirement System, the pension fund behind the first lawsuit against embattled custody bank State Street Corp, has just signed a new three-year deal with the bank, according to a report by Bloomberg. Calpers, as the fund is known, made headlines when it accused State Street of fraud in connection with foreign exchange trading rates, and the state of California is in the middle of a lawsuit against the company. Said one Calpers board member: ““It does seem contradictory…It was difficult to find someone who would provide all the services and at the terms we required.”
This announcement suggests that all the lawsuits and investigations pending against State Street (and its rival, Bank of New York Mellon) will have little effect on business. “That’s pretty good evidence the suits won’t have substantial impact on moving business around,” confirmed one New York equity analyst. “The funds are choosing the custodian that best serves their needs and at a good price.” Calpers staff apparently convinced board members to rehire State Street by citing the bank’s competitive prices and increased efforts at transparency.
State Street and BNY Mellon are facing investigations and legal action in several states over allegedly exploitative forex trading practices. A Wall Street Journal study published in May showed that, as critics have claimed, BNY Mellon did indeed give the pension fund a less favorable exchange rate than similar trades executed at the same time. BNY Mellon admitted to the practice, but adamant that they had done nothing illegal.
Though Calpers says it still supports the state’s investigation, the decision to renew their contract with State Street may have negative consequences for the case. The fund viewed bids from BNY Mellon, JP Morgan, and Northern Trust, and decided to remain with State Street. State Street might argue that if they truly felt defrauded, Calpers would have gone into business with one of its competitors.