STT State Street Corporation

On Friday, a U.S. district judge in San Francisco dismissed certain foreign exchange (FX) pricing-related allegations against The Bank of New York Mellon Corporation (BK), thereby providing a huge relief to the company. The judge discharged five out of nine claims regarding over-charging the FX transactions while the remaining four were transferred to different state courts.

The accusations under the California False Claims Act against BNY Mellon were dismissed. However, the allegations that relate to breach of fiduciary duty, breach of contract, unfair business practices and fraud by concealment were transferred to the state courts. Moreover, the judge provided the plaintiffs with 21 days time to file an amended lawsuit.

BNY Mellon has been facing similar litigations for the past several quarters. Many states including New York, Florida, California, Virginia, Ohio and Massachusetts have filed lawsuits against the company over similar allegations, such as misleading state and public pension funds, private companies, universities and banks via a scheme that overcharges foreign currency transactions.

Similar Dismissals Earlier

In January 2012, BNY Mellon reached a partial settlement with the U.S. regulators regarding FX charges that were bought against it by the government. As per the terms of the deal, the company will be required to reveal how prices were determined for particular transactions. However, monetary settlement is yet to be reached.

Also, in November, BK Mellon won a partial dismissal of FX lawsuit filed by the state of Virginia seeking nearly $932 million in penalties and damages over FX trades. The Fairfax County Circuit Court Judge dismissed two out of the three charges that were filed against the company. But, the main accusation of Fraud Against Taxpayers Act remained.

Our Viewpoint

BNY Mellon is not the only company that has been accused by the states of overcharging the pension funds. Back in 2009, the state of California had charged State Street Corp. (STT) for improperly pricing foreign exchange for California pension funds.

The dismissal of certain allegations is obviously a good sign for BNY Mellon. While the company is under tremendous pressure due to rising expenses, these lawsuits would further increase its costs. Also, these FX lawsuits will force the clients to reconsider their business ties with the company.

Currently, BNY Mellon retains its Zacks #3 Rank, which translates to a short-term ‘Hold’ rating. Moreover, in the absence of any significant positive or negative catalyst, we maintain a long-term “Neutral” recommendation on the stock.

 
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