Making His Mark Across the Atlantic | Chief Investment Officer

Canadian central bank head Mark Carney is taking the top spot at the Bank of England. Institutional investors see it as a step in the right direction.

(November 28, 2012) — The financial community is full of ex-pats moving to New York or London looking to gain international banking or investment experience which either helps them move up the corporate ladder or move on to the next job.

But policy leaders—often government appointees and at the center of monetary and fiscal policy—are rarely, if ever, chosen from outside a country’s borders.

Not so in the case of the Bank of England. For the first time in more than 300 years, the central bank has hired a foreigner to manage it—in this case, Canada’s Bank of Canada Governor Mark Carney. Carney, in his home country, is considered a steady hand and has been praised for his navigation through the economic crisis of 2008-09. Inflation remains low and although Canadian debt levels are high, the economy has fared better than most of the G-7 countries.

While his departure had been rumored for months, Carney’s acceptance of the position with the Bank of England came as a surprise to many in the Canadian financial community.

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Leo de Bever, chief executive officer of the Alberta Investment Management Corporation (AIMCo), says Carney’s departure is a loss for Canada but that he is qualified for his new position in England. “Carney was very important to us in the 2008 crisis,” notes de Bever. “In a very unusual move, he was willing to provide emergency liquidity to organizations like AIMCo much the same way as he would for banks. Just knowing that it was there allowed me to sleep better,” he added.

And while his departure is not causing too many waves, there are still questions as to who might replace him.

“In the short run, Mark’s departure won’t have much effect on Canadian institutional investors,” says Jim Keohane, president and chief executive officer for the Healthcare of Ontario Pension Plan. “Mark’s handling of the financial crisis and the policies he has implemented has put us on a solid footing and that won’t change in the short-term. In the long-term, it depends on the replacement and whether the markets have the same confidence in the new governor as they had in Mark.”

Keohane adds that while losing Carney is a negative for Canada, it is a positive for global markets where he can have a more direct influence. “We operate in global markets, so it is positive to have Mark in his new position where he will have a more prominent role to play in influencing those global markets.”

Generally however, the institutional investment community in Canada is taking the news in stride. Michael Nobrega, the Ontario Municipal Employees Retirement System’s president and chief executive officer remarks, “Canada’s price stability and monetary policies have gained international respect under Mr. Carney and this appointment is further evidence of that reality.”

Joel Kranc is the director of Kranc Communications in Toronto, focusing on business communications, content delivery and marketing strategies.

Contact him at: joel@kranccomm.com

A lawyer for Edward Pennings, formerly of the bank’s transition management unit, said his client was only following standard practices; State Street vigorously disputes the claim, labeling the dismissed employee a “liar.”

(November 27, 2012)—A lawyer for ex-State Street transition manager Edward Pennings has claimed in an East London Employment Tribunal that his client was following “accepted business practices” when overcharging occurred with multiple European pension clients.

Pennings, along with two others, were dismissed from State Street in 2011 when it was revealed that the Royal Mail pension plan was overcharged for a transition. The Sainsbury’s and Irish national pension plans were also overcharged, it was later revealed. State Street charged clients an undisclosed commission in addition to the agreed-upon management fee, an audit by the Irish government determined.

“This was an accepted business model, therefore [Pennings] had to defend the business model and the bank,” Jeffrey Bacon of law firm Littleton Chambers told the Tribunal. He added that Pennings was in “an impossible position” and that State Street’s refusal to look at the wider context of his actions was a mistake. “The wider context was crucial to this case,” he stated.

Bacon accused State Street of mishandling an internal investigation into Pennings’ conduct, asserting that the bank “took no steps to go to those people who were involved, including Ross McLellan, to ask them whether this was an approved business model.” McLellan was Pennings’ superior in Boston, and was also dismissed late last year.

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State Street Responds

State Street, in the form of Executive Vice President Richard Lacaille, responded that Pennings was fired for “lying” to the client. Lacaille was the disciplinary manager overseeing the initial internal hearing regarding Pennings’ conduct in October 2011. That hearing led to Pennings being dismissed shortly after.

Pennings “had a business model that he believed he was basically required to lie to your clients,” Lacaille told the Tribunal. “I disagreed.” Lacaille also stated that he did not think Pennings’ business model “did exist as an authorized, legitimate business model” within State Street.

“However, it was the lies that were by far the most important issue,” Lacaille added. “I spoke to Ed Pennings during his disciplinary hearing and there was a very clear set of evidence that he lied to his client.”

Lacaille also mentioned that others seemed to know of Pennings actions. “Clearly, other people were involved because he [Pennings] was involved in correspondence with McLellan,” he said. “Ross McLellan was certainly knowledgeable about the business model.”

Yet fault still lies with Pennings, Lacaille said. “Whether or not the business model was approved, the dismissal was based on the fact that he lied,” he said. “I think the idea that he lied to [the client] and continued, in a way, to conceal it is just not acceptable.”

According to Lacaille, the investigation gave him a “liberal mandate and I could talk to anyone I needed to” within the bank. In response to Bacon’s assertions that the bank failed to look at the wider context, Lacaille asserted: “I wasn’t asked to judge whole swathes of the organization. I was asked to judge one person.”

When contacted for comment following the day’s hearing, a State Street representative gave the following statement to aiCIO: “Mr. Pennings’ actions fell seriously short of the standards and conduct expected of any employee at State Street and we have zero tolerance for this. We have addressed the issues directly with the clients that were impacted. We are disappointed that Mr. Pennings has been unable to take responsibility for his behavior and that he has chosen this current course of action.”

During the investigation, Pennings’ codename was “Parker.”

Much of the first day of the Tribunal was spent debating procedural motions and evidence presentation. It is expected to continue for the rest of the week.

Additional reporting from London by aiCIO Contributor Lucy Pawle.