BNY Mellon (BK) Settles FX-pricing Lawsuits for $714M - Analyst Blog

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The Bank of New York Mellon CorporationBK has announced the settlement of multi-year litigations related to foreign exchange ("FX") trades as well as pension fund services. The company will shell out $714 million and resolve all the allegations made by the U.S. Department of Justice (DOJ), the New York Attorney General (AG), the U.S. Department of Labor, the U.S. Securities and Exchange Commission (SEC) and private customer class actions.

Lawsuit History

A suit against BNY Mellon was filed by the New York AG Eric Schneiderman in 2011, accusing it of deceiving customers by overcharging them for FX transactions. The complaint charged BNY Mellon of fraudulent representation wherein the bank did not provide the best possible prices to its customers including pension funds, while conducting foreign currency trades. Moreover, the AG alleged that the bank earned nearly $2 billon between 2001 and 2011 from this malpractice.

After this case, several other lawsuits were filed against BNY Mellon by many states including New York, Florida, California, Virginia, Ohio and Massachusetts over similar allegations, such as misleading state and public pension funds, private companies, universities and banks via a scheme that overcharges foreign currency transactions. Some FX pricing-related allegations were dismissed whereas some others were resolved by the company.

Settlement Details

Of the $714 million settlement amount, $167.5 million each will be paid to the DOJ and the New York AG. Further, $14 million will be compensated to the Department of Labor and $30 million will be given to the SEC. The remainder $335 million will be paid to settle the customer class action litigation. The money will be used to reimburse the clients victimized by the bank's fraudulent activities.

In addition, the bank will terminate the employment of some specific executives who were directly involved in such wrongdoings. In anticipation of settlement of these FX- related litigation issues, the bank made a legal reserve of $598 million, which led to the restatement of its fourth-quarter 2014 earnings.

Since the current settlement will be covered by legal reserves already set aside by BNY Mellon, the upcoming period results will not be impacted. Moreover, the bank will now be able to focus more on its core operations and improve efficiency.

Earlier, companies like State Street Corporation STT and JPMorgan Chase & Co. JPM have also been accused of overcharging clients either in FX transactions or pension funds.

BNY Mellon currently carries a Zacks Rank #3 (Hold). A better-ranked company in the same space includes Northern Trust Corporation NTRS , which holds a Zacks Rank #2 (Buy).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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