Salvation Army sues BNY Mellon
04 April 2011 New York
Image: Shutterstock
The Southern Division of the Salvation Army in the US has started legal proceedings against BNY Mellon following losses incurred as a result of its securities lending programme.
The charity alleges that the bank 'mismanaged' some of its assets by investing the collateral used for securities lending in risky mortgage backed securities. The charity added that it had emphasised to the bank that it had little experience in securities lending and wanted little or no risk from participating.
“As a result of BNY Mellon’s misconduct, the Salvation Army has incurred losses and is left holding unproductive, toxic assets with extended maturity dates, the values of which have substantially declined,” the organisation said in a lawsuit filed on Friday. “The Salvation Army cannot now devote those assets to its many charitable projects.”
“We believe our actions were appropriate, and we will defend ourselves vigorously against these claims, which are without merit,” said Ron Gruendl, a spokesman for BNY Mellon. “We have a very rigorous process, and our clients understand both the benefits and risks of securities lending.”
“These investments were inconsistent with the conservative risk profile of the Salvation Army,” the organization said in the lawsuit. “Moreover, BNY Mellon’s decision to overweight the Salvation Army’s portfolio heavily in favor of asset-backed securities tied to the housing market and financial services companies violated basic principles of prudent investing.”
*This article was amended on April 5 to remove the incorrect implication that the Salvation Army had discussed internally increasing its risk but had not communicated any desire to do so to BNY Mellon.
The charity alleges that the bank 'mismanaged' some of its assets by investing the collateral used for securities lending in risky mortgage backed securities. The charity added that it had emphasised to the bank that it had little experience in securities lending and wanted little or no risk from participating.
“As a result of BNY Mellon’s misconduct, the Salvation Army has incurred losses and is left holding unproductive, toxic assets with extended maturity dates, the values of which have substantially declined,” the organisation said in a lawsuit filed on Friday. “The Salvation Army cannot now devote those assets to its many charitable projects.”
“We believe our actions were appropriate, and we will defend ourselves vigorously against these claims, which are without merit,” said Ron Gruendl, a spokesman for BNY Mellon. “We have a very rigorous process, and our clients understand both the benefits and risks of securities lending.”
“These investments were inconsistent with the conservative risk profile of the Salvation Army,” the organization said in the lawsuit. “Moreover, BNY Mellon’s decision to overweight the Salvation Army’s portfolio heavily in favor of asset-backed securities tied to the housing market and financial services companies violated basic principles of prudent investing.”
*This article was amended on April 5 to remove the incorrect implication that the Salvation Army had discussed internally increasing its risk but had not communicated any desire to do so to BNY Mellon.
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