BNY Mellon Faces Two More FX Lawsuits That Could Weigh on Stock
The Bank of New York Mellon Corporation (NYSE:BK) saw two separate lawsuits filed against it yesterday by the Manhattan U.S. Attorney and the New York Attorney General for alleged fraud in foreign exchange transactions. [1] While the U.S. Attorney claims “hundred of millions” in penalties, the NY Attorney General claimed that the bank earned nearly $2 billion over the last 10 years by misleading clients about the exchange rates it used for foreign transactions. A spokesperson for the bank issued a statement that the lawsuits were flawed, and result from a “fundamental misunderstanding” of the bank’s foreign exchange business. BNY Mellon competes with State Street (NYSE:STT), JPMorgan Chase (NYSE:JPM) and Citigroup (NYSE:C) in providing investment servicing and investment management services to institutional investors around the world.
Check out our full analysis for BNY Mellon’s stock here
A “Multi-Pronged Campaign of Deception”?
Both lawsuits against BNY Mellon allege that since 2001 the bank has been cheating its clients by claiming that they were providing them with the best available exchange rate while actually providing them with some of the worst rates and pocketing the price difference. This differential bulked up the revenues the bank earned as foreign exchange fees. [1]
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The lawsuit also adds that many prominent corporations, institutions and government organizations – Microsoft, Sears, the World Bank and The Walt Disney Company to name a few – were misled into believing that they were receiving the best available forex rates from BNY Mellon.
These lawsuits add New York to the list of states suing BNY Mellon over alleged foreign exchange fraud, after the states of Virginia and Florida filed similar cases against the bank in August this year. While the bank maintains that these charges are without merit, the string of foreign exchange-related lawsuits could still damage the bank’s image and perceived trustworthiness among existing and potential clients.
We have a $34 price estimate for BNY Mellon’s stock, which we are currently reviewing in light of market conditions and litigation risks for banks.
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Notes:- NY prosecutors sue BNY Mellon over forex claims, Reuters, Oct 4 2011 [↩] [↩]