BOSTON, Feb 11 (Reuters) - BNY Mellon Corp said onMonday it will take an $850 million hit against first-quarterprofit, a move that also will erode some of its capital afterlosing a high-stakes tax case to the U.S. Internal RevenueService.
The world's largest custody bank announced the hit againstcapital and earnings just hours after the U.S. Tax Courtrejected BNY Mellon's bid to keep $900 million in tax benefits.The after-tax charge against profit is about $850 million, thebank said.
The bank claimed a benefit that stemmed from a $1.5 billionloan from Barclays Plc, funding so cheap, in fact, thatat one point Barclays actually paid BNY Mellon to take Barclays'money, according to court papers.
The IRS challenged the benefit and won after the court ruledthat the transactions lacked "economic substance," meaning theywere done solely for tax purposes.
Investors won't be completely blindsided by the profit hitbecause BNY Mellon previously disclosed in U.S. regulatoryfilings that it might have to book a reserve of up to $850million in the event of an unfavorable ruling in the case.
BNY Mellon said it would appeal the U.S. Tax Court'sdecision.
After taking the charge, the bank said it expects it willcontinue to be well capitalized. But its Basel III Tier 1 commonequity ratio will decline by about 55 basis points.
At the end of 2012, the bank's Basel III Tier 1 commonequity ratio was 9.8 percent.
Barclays (BARC)