The Bank of New York Mellon Corporation (NYSE:BK) finally has a reason to cheer, after U.S. District Judge William Alsup dismissed 5 of 9 claims against it in its stinging foreign exchange related lawsuits. [1] The world’s largest custody bank has been locked in legal battle against various states for years now over its allegedly making millions in forex transactions at their expense. Earlier this year, the bank reached a partial settlement with the New York Attorney General. That combined with the recent partial dismissal means BNY Mellon has only to deal with a lawsuit alleging breach of contract. Competitor State Street (NYSE:STT), which also faces similar lawsuits, would no doubt be keenly watching these developments for its own benefit.
Our $26 price estimate for BNY Mellon is nearly 9% above its current market price. We believe that this premium is largely due to the weak short-term outlook for global custody banking. The foreign-exchange related lawsuits are also a bitter pill for investors to swallow.
See our full analysis for BNY Mellon here
BNY Mellon faces multi-million dollar lawsuits from the states of New York, Virginia and Florida. All the lawsuits allege that the bank cheated its clients by claiming that they were providing them with the best available exchange rate since 2001, while actually providing them with some of the worst rates. The substantial price difference bulked up the bank’s foreign exchange fee revenues. [2]
In February, the bank agreed to provide detailed information about inter-bank exchange rates and the actually-settled buy-sell rates for its clients as part of a partial settlement with the New York Attorney General. [3] The bank also agreed to avoid using the misleading phrases “best execution,” “free” or “netting” in any communication about its standing-instruction foreign exchange services.
BNY Mellon has suffered a significant blow to its reputation from these forex-related lawsuits in the recent past. With the lawsuits being significantly blunted as a part of this ruling, BNY Mellon would try its best to reach a settlement with the disgruntled states and draw curtains on the long list of lawsuits at the earliest.
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Notes:- Forex lawsuit against BNY Mellon partly dismissed, Reuters, Mar 31 2012 [↩]
- NY prosecutors sue BNY Mellon over forex claims, Reuters, Oct 4 2011 [↩]
- BNY Mellon Settlement, BNY Mellon Website [↩]
