Ohio Treasurer Picks J.P. Morgan, Citi To Replace Trust Banks

J.P. Morgan Chase & Co. (JPM) and Citigroup Inc. (C) beat Bank of New York Mellon (BK) and State Street Corp. (STT) to become the trustee for four Ohio pension funds.

State Treasurer Josh Mandel said in a press release that his intent is to protect Ohio pension funds from the kind of fraud he alleged Bank of New York Mellon and State Street committed in overcharging for foreign-exchange trades.

Accusations about trust banks overcharging foreign-currency transactions have been plaguing the banks, and Bank of New York Mellon has rejected the claims.

Last week, Ohio Attorney General Mike DeWine joined the legal action, filing a $16 million lawsuit against Bank of New York Mellon for alleged fraud, deceptive practices and breach of contract when it conducted foreign-currency trades.

Virginia and Florida attorneys general sued Bank of New York Mellon for damages and civil penalties last year. In October, Massachusetts' securities regulator charged the bank with defrauding a state pension fund.

In January, the bank agreed to a partial settlement with the Justice Department that forces the custodial bank to change some disclosures about its foreign-exchange services.

"The pattern of fraud that has been detailed and alleged across the country against banks...is an extreme breach of the public trust," Mandel said. DeWine's legal allegations "reinforced my decision to designate new international custodians for Ohio pension funds to safeguard retiree and taxpayer dollars," Mandel said in the release.

Unlike Bank of New York Mellon and State Street, Citi and J.P. Morgan are diversified commercial banks and the two are among the nation's largest trustees. Both banks' trust departments have been beacons of stability in the financial crisis.

Citi and J.P. Morgan, however, have been struggling with accusations of botched home foreclosures and recently settled the matter with the Treasury Department and state attorneys general.

"Citi's Securities and Fund Services is proud to be selected by the State Of Ohio to provide custody services," a Citi spokeswoman said. A spokeswoman for J.P. Morgan declined to comment on the Ohio assignment.

A spokesman for Bank of New York Mellon said, "We're disappointed by the treasurer's actions. As we have stated previously, the suit by the Ohio Attorney General recycles baseless allegations and we are confident we are right on the facts and the law." State Street wasn't immediately available for comment.

-By Matthias Rieker, Dow Jones Newswires; 212-416-2471; matthias.rieker@dowjones.com

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