BNY Mellon (BK) Issues Statement on NY AG Civil Suit, Says 'Flat Out Wrong'

October 5, 2011 6:30 AM EDT
BNY Mellon (NYSE: BK) today issued the following statement in response to a civil lawsuit filed by the Office of the New York Attorney General. The lawsuit relates to foreign exchange services the company provided to certain institutional clients under its "standing instruction" program.

From the release:

"The claims in this lawsuit are flat out wrong, both on the law and on the facts. They reflect a fundamental misunderstanding by the Attorney General and his staff of the role of custodian banks and the operation of institutional FX markets. We will defend ourselves vigorously on behalf of our shareholders, including many pension funds, and our more than 50,000 employees, 8,700 of whom are based in New York.

"Above all, our client relationships and our integrity are our most valuable assets. We are always open to resolving issues about our services on a commercial basis with our clients – it is how we remain competitive, because every day we are competing in the marketplace for their business.

"All of our FX alternatives offer our clients valuable services at a competitive price in a transparent market. The Attorney General's lawsuit ignores the benefits our standing instruction service provides to our custody clients and their investment managers, who freely choose to use it. The Attorney General is in essence attacking BNY Mellon for operating a profitable business, suggesting that we should provide our valuable FX services at cost – something no rational commercial institution would do.

"It is particularly disturbing that the Attorney General deliberately ignores that BNY Mellon acts as principal in standing instruction transactions, which provide real value to our clients. In standing instruction transactions, BNY Mellon buys currencies from and sells currencies to institutional custody clients at 'wholesale' prices that are significantly better than they could obtain from other providers, particularly for transactions of a similar 'retail' size. Our U.S. trading desks publish a guaranteed range of prices each morning, and clients and investment managers can choose to opt out of the standing instruction program every day if they don't like the range of rates we are guaranteeing. Our clients and their investment managers have full access to daily reports that detail the prices they received for each transaction, so they are able to compare our pricing to other options in the market and assess the value provided.

"This action is prosecutorial overreach that ill serves New York, New Yorkers and the pension funds whose interests the Attorney General purports to advance. While we recognize that capitulating to the Office's demands might avoid some nasty headlines, we refuse to be coerced into admitting to and paying for wrongdoing that does not exist.

"Importantly, our clients and their investment managers make the decision where and how to execute foreign exchange transactions, not BNY Mellon. Our clients are smart and sophisticated institutional investors with professional investment managers who are responsible for deciding which of the numerous FX services available from BNY Mellon and other market participants they should use. If the prices we provided were not competitive, clients and their investment managers would not continue to use our services.

"We are committed to ensuring that clients thoroughly understand our practices and policies, and to continuing to develop new alternatives to meet their foreign exchange needs. But we do not believe that a subjective determination by the Attorney General about the value and appropriate pricing of BNY Mellon's standing instruction services should be substituted for the considered judgment of the world's most sophisticated investment professionals."

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