BNY Mellon Cash Fund Hit by Losses From Lehman Debt (Update1)
Sept. 18 (Bloomberg) -- An institutional fund run by Bank of New York Mellon Corp. and designed to work like a money-market account fell to less than $1 a share after losses on debt issued by bankrupt Lehman Brothers Holdings Inc.
The $22 billion BNY Institutional Cash Reserves fell to $0.991 a share on Sept. 16, according to an e-mail sent by a bank representative to one client. BNY Mellon has ``isolated the Lehman assets in the fund into a separate structure,'' Ivan Royle, a spokesman for the New York-based company, said today in an e-mailed statement.
The fund invests cash deposited as collateral by clients who borrow securities from BNY Mellon, the world's largest custody bank. Lehman debt represented 1.13 percent of the fund's holdings, according to the statement. Royle declined in an interview to say whether investors withdrawing money from the fund would realize losses.
BNY Mellon also entered into agreements with four of its Dreyfus money-market funds, including the $16.9 billion Cash Management Plus, saying it will support their net asset values.
``These agreements are intended to ensure that a decline in the value of the Lehman notes will not result in a decline in the share price of the funds below $1,'' the company said in a statement posted yesterday on its Web site. Dreyfus manages $250 billion in money-market funds that hold $262 million in unsecured debt obligations issued by Lehman, the site says.
The BNY Mellon institutional fund, while not a registered money-market fund, is ``generally managed to be compliant with the investment-related provisions of'' U.S. law governing the accounts, according to a bank brochure.
Reserve Fund
Reserve Primary Fund, the oldest U.S. money-market fund, on Sept. 16 became the first in 14 years to fall below the $1 a share price, known as ``breaking the buck.'' Investors pulled 60 percent of their money from the $62.6 billion fund on Sept. 15 and 16 before withdrawals were delayed.
Money-market funds, considered the safest investments after bank deposits and Treasury debt, strive to preserve a $1-a-share net asset value, meaning that investors can always get back their principal. Companies including Wachovia Corp. have pledged to support their money-market funds with losses linked to Lehman.
Royle said the fund represents less than 1 percent of the bank's total securities lending and ``collective fund activity.''
Monitoring Funds
He said the fund's clients had been informed and the bank was ``continuing to monitor very closely all market related activity to our money-market, cash and securities lending operations.''
Deutsche Bank analyst Mike Mayo downgraded BNY Mellon to ``hold'' from ``buy.''
BNY Mellon fell $1.53, or 4.6 percent, to $31.57 at 4:15 p.m. in New York Stock Exchange composite trading. It has fallen 34 percent this year, compared with the 29 percent decline of the Standard & Poor's 500 Financials Index.
The company is the world's largest custody bank, administering $23 trillion in assets as of June 30.
Lehman, once the fourth-largest U.S. investment bank, filed for bankruptcy on Sept. 15. Reserve Primary held $785 million in Lehman debt, which the fund revalued as worthless on Sept. 16.
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