Bank of New York Mellon has agreed to settle a class-action lawsuit brought by investors who claimed that the company unwisely invested in a chancy investment fund.
The New York company said Friday that it recorded a pretax charge of $350 million in the second quarter, which included an expected payment of $280 million to settle the case tied to its investment in Sigma Finance.
Sigma Finance, which was a $27 billion structured investment vehicle (SIV) created by Gordian Knot, failed in 2008. The SIV bought ABS by issuing short-term paper.
BNY Mellon had lost a significant portion of cash collateral in medium-term notes issued by Sigma Finance through a securities lending program, the lawsuit alleged, Reuters reported Friday.
BNY Mellon is "putting this litigation behind us, with no significant impact on our capital position," Gerald L. Hassell, chairman and chief executive of BNY Mellon, said in a news release.
The lawsuit was pending in federal court in Oklahoma and was initiated by CompSource Oklahoma. The settlement is subject to court approval.
BNY Mellon also said Friday that, after a preliminary review of the recently released Basel III rulemaking, it estimates that it will need to increase its Base III Tier 1 common equity ratio by more than 100 basis points. That ratio stood at 7.6% on March 31. The expected increase is mostly due to the estimated reduction in risk-weighted assets related to the company's securities portfolio, the company said.