Compliance April 10, 2009

State Street Must Answer to Nuns

Already facing a number of lawsuits over subprime mortgage investments, State Street Corp. now has to face an order of nuns in court.
Reported by

The Sisters of Charity of the Blessed Virgin Mary have filed suit against State Street Corp., alleging the Boston-based firm lost more than $1 million of the nuns’ retirement savings by investing in derivatives and subprime mortgages.

According to the Boston Business Journal, in the complaint filed in U.S. District Court for the Southern District of New York, the Sisters claim in the spring of 2005 that State Street promoted investment in the Enhanced Dow Jones-AIG Commodities Futures Strategy, saying it was “a conservative investment strategy” and “remains unleveraged at all times.’

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The Sisters agreed to invest in the strategy with assets for the care of retired nuns in the sect. However, the Sisters allege State Street began adding leverage to the funds and invested in non-investment grade assets, including subprime mortgage backed securities and credit default swaps, in late 2006, unbeknownst to the Sisters.

A news report on the case in the Boston Herald says the order has 555 sisters in more than 20 states, but most are retirees who depend on the investment with State Street for retirement income.

The suit seeks damages equal to the amount of money lost in the fund as well as profits that would have been made if the money was invested according to the original strategy.

According to the Herald, Arlene Roberts, a spokeswoman for State Street, said the company is prepared to fight the lawsuit. “We will defend ourselves against inappropriate claims, including those who seek recovery of investment losses that arise solely from changes in market conditions,’ she stated.

Last year, the firm set aside a reserve of $625 million to deal with potential lawsuits involving some of its fixed-income strategies (see “State Street Names New SSgA Chief, Takes $279M Reserve’).

Deals & People April 10, 2009

UBS To Let Go Lower Producers

UBS plans to lay off lower-producing financial advisers later this month, according to a report in The Wall Street Journal.
Reported by

UBS’s brokerage business also plans to lay off support staff, according to the news report. Marten Hoekstra, head of UBS Wealth Management US, disclosed the plans during a conference call with employees, according to the news report.

Hoekstra told the financial advisers that it doesn’t mean the company is exiting the U.S. wealth-management business.

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Last month, UBS announced it would sell off up to 55 of its 406 U.S. wealth-management branches to Stifel Financial Corp. (see “Stifel Nicolaus to Acquire up to 55 Branches from UBS’). The WSJ said the move followed UBS looking unsuccessfully for buyers for its U.S. wealth-management business.

The WSJ noted that UBS has not participated in consolidation like its peers, including Morgan Stanley, Citigroup Inc’s Smith Barney, Bank of America Corp., and Merrill Lynch (see “Morgan Stanley Smith Barney Is Born’ and “Bank of America Buys Merrill Lynch’).


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