Bank of New York Mellon Corp. said Wednesday that it will take a $425 million charge this quarter for its support of 10 funds, six of which the company said for the first time needed help to avoid "breaking the buck" after Lehman Brothers' bankruptcy filing.
The charge, which involves five so-called cash sweep funds and one used to reinvest cash collateral within Bank of New York's securities-lending business, highlights the steps companies have been taking to keep money market investors whole.
The sector fell into disarray last week after the Reserve Primary Fund, one of the largest money market funds, said at least a dozen large investors had pulled out almost $40 billion of their money and caused the fund to "break the buck" — its net asset value fell below the time-honored standard of $1 a share.
Putnam Investments closed its institutional Putnam Prime Money Market Fund on Friday after a surge of redemption requests.
Investors have been growing increasingly fearful that money managers such as Bank of New York Mellon, which are typically quiet custody-bank companies, could be next to be hit by the widening financial crisis.
"These actions will provide support to our clients and, given our size and industry leadership, will hopefully contribute to greater stability in the overall market," Robert P. Kelly, Bank of New York Mellon's chief executive officer, said Wednesday. "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."
Mr. Kelly's company expects to report a profit for the third quarter, despite the announced charge, which also includes four Dreyfus money market funds for which it disclosed capital-support deals last week.
Bank of New York Mellon also said its deposits have surged during the recent market turmoil, so its Tier 1 capital ratio will be around 9% when the quarter ends Tuesday.