BOSTON Feb 11 BNY Mellon Corp said on
Monday it will take an $850 million hit against first-quarter
profit, a move that also will erode some of its capital after
losing a high-stakes tax case to the U.S. Internal Revenue
The world's largest custody bank announced the hit against
capital and earnings just hours after the U.S. Tax Court
rejected BNY Mellon's bid to keep $900 million in tax benefits.
The after-tax charge against profit is about $850 million, the
The bank claimed a benefit that stemmed from a $1.5 billion
loan from Barclays Plc, funding so cheap, in fact, that
at one point Barclays actually paid BNY Mellon to take Barclays'
money, according to court papers.
The IRS challenged the benefit and won after the court ruled
that the transactions lacked "economic substance," meaning they
were done solely for tax purposes.
Investors won't be completely blindsided by the profit hit
because BNY Mellon previously disclosed in U.S. regulatory
filings that it might have to book a reserve of up to $850
million in the event of an unfavorable ruling in the case.
BNY Mellon said it would appeal the U.S. Tax Court's
After taking the charge, the bank said it expects it will
continue to be well capitalized. But its Basel III Tier 1 common
equity ratio will decline by about 55 basis points.
At the end of 2012, the bank's Basel III Tier 1 common
equity ratio was 9.8 percent.