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Bank Of New York Mellon Backs Off From Its Plans For Deposit Fee

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(JED HOROWITZ, Reuters) - Bank of New York Mellon Corp, which was derided for a plan to charge some of its large corporate and investment management clients for holding their deposits, appears to have flinched.

The bank has not assessed a penny since warning clients about the possible deposit fee in early August, officials told Reuters, although it remains burdened by cash that it cannot profitably redeploy at rock-bottom interest rates.

The fee of 0.13 percent was to have taken effect on August 8 for accounts with more than $50 million that had soared well above their monthly averages as clients fled short-term investments for the safety of U.S. banks.

"My guess is that the backlash was pretty stringent and they decided not to do it," said William Gerber, chief financial officer of TD Ameritrade Holding Corp, a cash-management client of Bank of New York. "I can see their problem but I'm not that empathetic considering all the fees we've been waiving."

He was referring to hundreds of millions of dollars of money-market mutual fund fees that financial companies have waived over the past two years lest investors realize negative returns on their fund holdings.

Unlike Bank of America, which was shamed into withdrawing a plan to charge its customers $5 for debit card transactions after a torrent of articles ridiculing the proposal, Bank of New York said that its super-sized version of its deposit fee is not dead.

"We haven't charged any clients to date, and the policy remains in place as markets remain unsettled and interest rates remain at historic lows," BNY Mellon spokesman Ron Sommer wrote in an email.

The fee, he added, was aimed at "a small number of clients with extraordinarily high and volatile deposit levels." In its August letter, the bank urged clients to consider cash investment options "to minimize any effect" of the mooted fee.

ANXIETY DROVE DEPOSITS

The plan was prompted by a flood of deposits from companies, money-market funds and other clients fleeing short-term investments that exposed them in late July to the then-unfolding Greek financial crisis and from U.S. government securities amid a Congressional impasse over raising the U.S. debt ceiling.

A source said Bank of New York's deposits swelled about 39 percent in a period of two weeks in late July and early August to about $250 billion, underscoring the fragility of the global financial system at any sign of panic and creating balance-sheet management challenges for the bank.

At the end of September, deposits were 45 percent higher than a year earlier, Chief Financial Officer Todd Gibbons said in discussing third-quarter earnings, though he said the influx had stabilized since earlier in the quarter.

Sommer declined to discuss the deposit levels.

Bank of New York continues to attract a heavy flow of cash since it has higher ratings from Moody's Investor Services than trust bank competitors such as State Street Corp and Northern Trust Corp, another official said.

Those banks did not match Bank of New York's deposit fee announcement, although some commercial banks with larger lending businesses that fund loans with deposits have been passing FDIC fees to some of their small-business customers.

The policy was initiated under former Bank of New York Chief Executive Robert Kelly, who was ousted in early September and replaced by Gerald Hassell, a 30-plus-year veteran of Bank of New York who some insiders said was more sensitive to client relationships. Kelly took the top role when the New York bank combined in 2007 with Pittsburgh-based Mellon Financial Corp, which he led.

"I believe they are backing away from the strategy, Gerard Cassidy, an analyst at RBC Capital Markets, wrote in an email. "Not certain if it is customer backlash or a rethinking of strategy under new CEO."

Custody banks make most of their money from holding securities and other assets for clients worldwide and ensuring that they are properly accounted for and exchanged when clients demand.

Bank of New York swapped its 338 retail branches and small business banking businesses in 2006 for JPMorgan Chase & Co's corporate trust business and $150 million in cash. The deal helped Bank of New York avoid some of the credit problems that continue to depress earnings of more traditional banks, but deprives it of the ability to negotiate on loans and other businesses in return for winning custody activities.

Because rates are so low, many custody banks today are less eager to attract new business or are more aggressive about insisting that clients offset the low-return deposit business by using other services, said Anthony Carfang, head of Treasury Strategies, a Chicago-based consulting firm.

(Reporting by Jed Horowitz; Editing by Tim Dobbyn)

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