BNY Mellon imposes fee on rapidly growing deposits
Bank of New York Mellon Corp is charging some of its big customers a fee for large deposits, a sign of the fear in markets as investors flee risky assets for the safety of cash.
BNY Mellon said the fee would be imposed on big corporate and asset management clients that deposit more money than average, because it has been overwhelmed by deposits.
Global economic turmoil -- including the Greek debt crisis and the U.S. debt ceiling debate -- has driven BNY Mellon's large clients to sell riskier assets and move the proceeds to deposit accounts.
The influx of cash is likely to raise BNY Mellon's U.S. deposit insurance fees and could weaken capital ratios, which are partly based on liabilities such as deposits.
BNY Mellon said in a letter to clients that the big increase in deposits is likely transient, meaning the funds cannot be invested.
Past history shows that once the storm passes, these deposits quickly return to the markets, its letter said.
The fee is nominal -- just 0.13 percentage points a year, or less than $200 a day on an excess balance of $50 million -- and it applies only to clients with average deposits of more than $50 million who exceed their average levels in June. High-net worth clients are not subject to the fee.
The decision to impose a charge, however, reflects how pressed banks feel to control costs as interest rates wallow near zero in an economy that shows little signs of recovery.
The decision to charge for deposits contributed to soaring demand on Thursday for U.S. Treasury bills, traders said, as bank depositors redeployed cash into government securities. One-month T-bill rates dipped below zero.
The bank encouraged clients to consider a variety of cash investment options to minimize any effect of the new charge.
BNY Mellon, like other trust and custody banks, manages cash for companies and handles back-office processing of securities and banking transactions for fund managers, among its other businesses. The bank does not have retail branches.
The company's move to impose deposit fees was not matched by rivals State Street Corp, [ID:nN1E773182] or Northern Trust Corp [ID:nN1E7731UB].
BNY Mellon's deposits are rising in part because companies have been maintaining higher cash balances during the recent financial and economic turmoil. Similarly, investment managers have been selling risky assets and plowing proceeds into bank accounts to ensure they can meet investor demands for redemption.
Marty Mosby, a banking analyst at Guggenheim Partners, said BNY Mellon has more corporate clients than many of its rivals and therefore attract more deposits.
The bank is imposing the new fee on customers whose monthly average balances after August 8 are more than 10 percent above their average in June and the extra fee only applies to the portion of the balance that is at least 10 percent above the average.
The fee is 0.13 percentage points annualized, which is adjusted if one-month Treasury bill rates fall below zero.
The bank said the fee is intended to apply to a small number of clients and will likely be rescinded as markets return to normal.
Higher deposits could raise U.S. deposit insurance fees assessed quarterly by the Federal Deposit Insurance Corp, based on banks' daily average deposit and asset levels. (Reporting by Dan Wilchins and Emily Flitter; additional reporting by Richard Leong and Jed Horowitz in New York and Aaron Pressman in Boston; editing by Chizu Nomiyama, Tim Dobbyn and Andre Grenon)
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