SEC Probes Bank of New York Clearing Unit

Tue Nov 9, 2004

NEW YORK (Reuters) - Bank of New York Co. (BK.N: Quote, Profile, Research) on Tuesday said regulators are examining whether its Pershing LLC unit cleared improper stock trades.

The New York-based company said government and self-regulatory agencies are examining possible "market-timing" transactions cleared by Pershing, which Bank of New York bought from Credit Suisse Group (CSGN.VX: Quote, Profile, Research) for $2 billion in May 2003.

Market timing involves the rapid trading of shares at the expense of ordinary investors, and is widely considered improper though not necessarily illegal.

Bank of New York also said government agencies requested documents in connection with probes of the issuer services industry. The document requests have focused mainly on the bank's roles as a transfer agent for equity issuers, and as a debt auction agent.

In addition, Bank of New York said government and self-regulatory agencies are looking into its BNY Hamilton Funds Inc. asset management unit's relationship with the company and the funds' administrator.

Bank of New York discussed the various examinations in its quarterly report filed with the U.S. Securities and Exchange Commission. Spokesman Jeep Bryant declined to elaborate.

Bank of New York shares fell 75 cents, or 2.2 percent, to $32.98 in afternoon trading on the New York Stock Exchange, after earlier falling as low as $32.51.

Michael Mayo, an analyst for Prudential Equity Group LLC, said the stock's decline appeared to result from the disclosures, which he said included a new "boilerplate-like" paragraph on legal risks. But he said the probes are not a "big issue" for the company.

"It seems in the firm's best interest to (disclose) more detail," he wrote. "Our best guess is that, worst case, these probes result in a one-time charge in any one quarter that does not move the needle too much to the firm's equity."

Mayo has an "overweight" rating on the bank's shares.

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