By Liz Moyer
Bank of New York Mellon Corp. (BK) said Friday it will take a $350 million pretax charge in the second quarter, mostly to settle a lawsuit by investors who accused it of putting them in a risky debt security that collapsed during the financial crisis.
The settlement, which needs court approval, concerns the late-2008 collapse of a $27 billion structured investment vehicle called Sigma Finance Corp.
Investors in a securities-lending program run by Bank of New York, led by Oklahoma's state insurance fund, filed a class-action suit in federal court in Oklahoma in 2008. The securities-lending program put the investors' cash collateral in Sigma, according to the suit.
J.P. Morgan Chase & Co. (JPM) agreed to settle a similar Sigma-related class-action lawsuit in March for $150 million. It didn't admit wrongdoing. A federal judge in Manhattan approved the settlement in June.
Bank of New York said in a statement Friday that the second-quarter charge includes an expected payment of $280 million to settle the Sigma lawsuit, as well as additional litigation charges.
Gerald Hassell, the bank's chairman and chief executive, said in a statement, "We are putting this litigation behind us, with no significant impact on our capital position, while continuing to make headway on other matters." The bank didn't admit to any wrongdoing related to the matter.
Bank of New York also disclosed it estimates new Basel III capital rules will increase its Basel III tier-one common-equity ratio by more than one percentage point. That ratio was 7.6% at the end of March. The increase in the ratio is due to estimated reductions in risk-weighted assets in the bank's securities portfolio.
Analysts polled by Thomson Reuters expect Bank of New York to post second-quarter net income of $638 million, or 54 cents a share. It is scheduled to report July 18.
Bank of New York shares traded lower Friday, down 17 cents, or 0.8%, to $21.80, amid a broad selloff in financial stocks.
Write to Liz Moyer at email@example.com