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BNY Mellon: No lawsuit impact

| Wednesday, May 25, 2011

Institutional investors haven't slowed their foreign-exchange trading at Bank of New York Mellon Corp., even after two states accused the company of overcharging public pension funds for those services.

"Trading patterns with us haven't changed," Vice Chairman Timothy Keaney said on Tuesday at an investment conference in London. "I am not worried."

BNY Mellon, the world's largest custody bank with about $25.5 trillion under administration, and Boston's State Street Corp., the third-biggest custodian, are accused in lawsuits of inflating the price of some foreign-exchange transactions and acting to conceal those markups. New York-based BNY Mellon got $173 million, or 4.7 percent, of its revenue from foreign-exchange trading in the first quarter.

Attorneys general in California and Arkansas stepped in to support whistle-blower allegations against State Street, and Florida and Virginia acted on similar cases against BNY Mellon. Massachusetts' attorney general last year declined to take over a suit against State Street.

California claimed State Street defrauded the state's two biggest public pension funds of $56 million since 2001 by charging more than agreed on the transactions and hiding the overcharges by entering false exchange rates into its own databases and in documents. The state is seeking more than $200 million in damages and penalties.

The U.S. Securities and Exchange Commission and Massachusetts' chief securities regulator, Secretary of the Commonwealth William F. Galvin, are investigating the claims against State Street. The SEC also is looking into BNY Mellon, the Wall Street Journal reported yesterday.

Kevin Heine, a spokesman at BNY Mellon, declined to comment, as did David Bergers, head of the SEC's Boston office.

Both banks have denied the allegations and said they will defend against the suits.

The lawsuits and the scrutiny they have brought may force Bank of New York and its rivals to accept lower prices on foreign-exchange trading, according to some analysts who follow the industry.

"We could see lower margins in this business," Gerard Cassidy, an analyst with RBC Capital Markets in Portland, Maine, said.

BNY Mellon dropped 32 cents, or 1.2 percent, to $27.49 in New York Stock Exchange composite trading at 4:15 p.m. State Street lost 69 cents, or 1.5 percent, to $44.96.

BNY Mellon has declined 9 percent this year and State Street 3 percent, while the Standard & Poor's index of asset managers and custody banks has fallen 2.7 percent.

Custody banks keep records, track performance and lend securities for institutional investors including mutual funds, pension funds and hedge funds. State Street and BNY Mellon also manage investments for individuals and institutions.

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