UPDATE 1-Bank of NY Mellon has big money fund bailout charge
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By Jonathan Stempel
NEW YORK, Sept 24 (Reuters) - Bank of New York Mellon Corp (BK.N) said on Wednesday it will take a $425 million third-quarter charge to bail out 10 funds affected by Lehman Brothers Holdings Inc's (LEHMQ.PK) bankruptcy, in a bid to help investors avoid losing money.
The bank joins fund providers such as Legg Mason Inc (LM.N) and Great-West Lifeco Inc's (GWO.TO) Putnam Investments to shut or provide support to funds that have struggled this month amid financial market turmoil.
Cash and money market fund accounts are designed not to lose investor principal. Though this is not guaranteed, fund sponsors often support such accounts because of the withdrawals and damage to reputation that could result if they do not.
On Friday, the U.S. Treasury Department said it would temporarily guarantee money market funds against as much as $50 billion of losses.
Bank of New York Mellon said it will support four of its Dreyfus money market mutual funds, five commingled funds used mainly to hold cash overnight, and an institutional fund used to reinvest cash collateral in the bank's securities lending business.
"While we are disappointed that the cost of these actions will impact our quarterly results, we feel this is an important investment in our client relationships," Chief Executive Robert Kelly said in a statement.
He said Bank of New York Mellon expects to be profitable this quarter, and has seen a "significant increase" in deposits from nervous investors seeking safety.
The bank expects to end September with a Tier-1 capital ratio of about 9 percent, well above the regulatory minimum.
Analysts on average expected a quarterly profit of 71 cents per share, according to Reuters Estimates.
On Sept 16, the Reserve Primary Fund, overseen by money fund pioneer Bruce Bent, said its net asset value had fallen to 97 cents per share because of losses tied to Lehman. Money funds try to maintain a constant $1 share price.
Two days later, Putnam said it would close its $15 billion Prime Money Market Fund, which serves professional investors, because of heavy redemptions. And on Sept. 19, Legg Mason projected a $318 million charge to prop up three money funds.
Bank of New York Mellon shares closed Tuesday at $31.81 on the New York Stock Exchange. They began the year at $48.76. (Editing by Maureen Bavdek, Dave Zimmerman)
