Troubles Continue for BNY Mellon - Analyst Blog
November 29 2012 - 5:00AM
Zacks
As per a Reuters report, after the pension funds
related charges, Bank of New York Mellon Corp.
(BK) is now being pressured by Fidelity Investments – one of the
largest mutual funds and financial services groups – to maintain
stringent pricing standards on foreign currency trades. As
mentioned in a number of lawsuits filed against BNY Mellon,
Fidelity has also been overcharged by the bank in pricing on
certain foreign exchange (FX) trades having standard order.
BNY Mellon is not the only bank to have been accused by the states
for overcharging the pension funds in relation to FX trades. Back
in 2009, the state of California had charged State Street
Corp. (STT) for improper pricing of foreign exchange for
California pension funds.
The banks had resorted to such fraudulent moves driven by the
downtrend in foreign-exchange business due to volatile markets. In
the third quarter of 2012, BNY Mellon recorded total revenue of
$121 million for foreign-exchange trading, plummeting 45% on a
year-over-year basis.
Therefore, BNY Mellon, leveraging on clients like Fidelity,
overcharged them for extra revenue and subsequently entangled
itself in a number of lawsuits filed by the U.S. Department of
Justice (DOJ) and others. In the U.S. District Court in the
Southern District of New York, BNY Mellon is fighting a civil fraud
case of more than $1 billion, pursuing by the Justice Department.
The bank squabbles in court filings arguing its trade-pricing
policies were allowable and did not violate any laws.
Though Fidelity has not filed any lawsuit against BNY Mellon, DOJ
filings show that the mutual fund firm has faced losses worth over
$50 million on standing instruction trades with BNY Mellon from
2007 to 2010.
BNY Mellon’s representative argued that the bank’s
foreign-exchange products continued to grow attributable to client
demand and market conditions, while refraining from any comments on
Fidelity.
Owing to such issues, customers have grown wary and are dem
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