Renewed Fears Send BoNY Stock Falling
- By Christopher Condon
- Apr. 04 2008 00:00
The Federal Customs Service sued the New York-based bank May 17 in Moscow Arbitration Court, accusing it of helping illegally transfer $7 billion out of the country in the 1990s. In a March 27 report, Richard Bove, who covers the company for New York-based Punk Ziegel, said U.S. and European Union courts might enforce any ruling made in Russia.
Lawyers representing Russia issued a statement Monday after the close of U.S. trading, citing Bove's report as evidence that there is a "consensus building among analysts and legal experts" that the suit will stand up in courts outside the country.
The lawyers said they were confident that "Russia will be able to obtain court orders seizing billions of dollars of the bank's worldwide assets" to satisfy the suit's claim of $22.5 billion in damages to the state.Bank of New York fell $2.13 to $42 at 4:01 p.m. in New York Stock Exchange composite trading, after falling as low as $41.25 earlier in the day.
Jonathan Schiller, a Washington-based lawyer with Boies, Schiller & Flexner who represents the bank, called the Russian claim "completely invalid."
"A judgment against Bank of New York in this case would not be enforceable under the centuries-old Revenue Rule, which prevents enforcement in the United States (and many other countries) of a judgment for damages based on alleged unpaid taxes under foreign tax laws, as well as for other reasons," Schiller said in an e-mail.
In 2005, Bank of New York reached a settlement in the United States, admitting that it failed to report suspicious transactions and paying $14 million to end two criminal probes. The bank failed to win a dismissal of the Russian claim on Feb. 29. No judgment has been reached in the case.
In his report, Bove said Bank of New York "is facing an extraneous event that may now drain management." He cited examples of U.S. and European courts enforcing Russian court rulings that increased his concern.
"I am a big believer in Bank of New York Mellon's business plan," Bove, who is based in Florida, wrote in the report. Yet "the risks all of a sudden have become very large in this investment."
Gerard Cassidy, an analyst at RBC Capital Markets in Portland, Maine, said in an interview that the Moscow court's decision and any attempt at enforcement would likely take years to resolve.
"This is not going to be the driving force of stock price action as it is today, but it will always be overhanging the stock," he said.