October 17, 2014 / 3:35 PM / 6 years ago

UPDATE 1-BNY Mellon says charging clients on their euro deposits

(Adds comment from BNY Mellon CFO, fund manager, background)

By Tim McLaughlin

BOSTON, Oct 17 (Reuters) - BNY Mellon Corp, the world’s largest custody bank, said on Friday it began earlier this month charging clients 0.20 percent on euro-denominated deposits that recently totaled about $33 billion.

BNY Mellon initiated the charge on Oct. 1, reflecting a recent move by the European Central Bank to charge 20 basis points on deposits in hopes of persuading banks to lend more money to businesses and consumers.

“Many institutions started to charge for deposits,” BNY Mellon Chief Financial Officer Todd Gibbons said. “We’re kind of in the middle of the pack.”

Since imposing the 0.20 percent charge, there has been some decline in euro-denominated deposits at the bank, he said.

Matt Eagan, a portfolio manager at Loomis Sayles, said his bond funds have been repatriating cash back to the United States to avoid getting charged on bond interest payments that might otherwise be parked at a European bank.

“Our clients don’t want to get charged for deposits in Europe,” Eagan said.

BNY Mellon reported $221.7 billion in average deposits at the end of September. And the bank said 15 percent of that amount was in euro-denominated deposit liabilities.

Banks typically pay customers for their deposits, but that amount has been paltry amid an environment of prolonged, rock-bottom interest rates. The ECB’s charge on deposits is designed to spur economic activity.

In June, the ECB took the extraordinary step of charging banks 0.10 percent to park their money at the central bank. And in September, that negative rate was increased to 0.20 percent in a move to jump start a flagging European economy.

As of Sept. 30, BNY Mellon had $92.3 billion in interest-bearing deposits with the U.S. Federal Reserve and other central banks. That is down from $106 billion at the end of June.

Gibbons declined to say how much of the bank’s deposits were with the ECB.

In 2011, BNY Mellon told some of its biggest depositors, hedge funds and other asset managers, that it would charge them a nominal fee of 0.13 percentage points a year on deposits in excess of $50 million. The move came amid the Greek debt crisis and the U.S. debt ceiling debate. The financial turmoil spurred big bank clients to sell riskier assets and to shift the proceeds into the shelter of their bank accounts.

And in 2012, the bank openly talked about charging clients on their euro deposits as jittery investors felt more comfortable parking their cash rather than buying stocks and bonds. But no decision was made at the time.

In the recently ended third quarter, BNY Mellon’s net interest margin - largely the difference between what the bank pays on deposits and what it earns on the money through investing - was 0.94 percent compared with 1.16 percent in the year-earlier quarter. (Reporting By Tim McLaughlin; Editing by Chizu Nomiyama and Marguerita Choy)

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