BNY Mellon Races to Fix Pricing Glitch Before Markets Open

Dow Jones Newswires

Bank of New York Mellon Corp.'s chief executive warned clients that his firm might not be able to solve all pricing problems caused by a computer glitch before markets open Monday, the latest delay in an unprecedented outage that has frustrated investors and prevented nearly 50 fund companies from providing accurate values for their holdings. It "has taken far longer than any of us would have expected," CEO Gerald Hassell said in a Sunday night conference call. More than 100 employees at the New York company worked through the weekend to correct the glitch and provide up-to-date pricing for roughly 1,200 mutual funds and exchange-traded funds that have lacked accurate asset value figures since last Monday. Mr. Hassell said BNY Mellon had calculated the net asset values for all funds through last Thursday, with the exception of one company. BNY didn't name the company. Mr. Hassell told clients that the task would be complete for mutual funds sometime Monday morning but didn't promise to provide all values before the market opens. Correct prices for exchange-traded funds are expected to be fixed before the open, he said. The bank, fund companies, regulators and exchanges hoped to start the week with the issue resolved, said a person familiar with the firm. The outage has roiled money-management firms that strive to provide investors with accurate pricing for their funds. In its first attempt at quantifying the outage, BNY Mellon said that 20 mutual-fund companies and 26 providers of exchange-traded funds had been affected. Setbacks in resolving the issue have put BNY Mellon's reputation on the line, said analysts, likely prompting some clients to at least consider whether to move their business to a rival custodian. For BNY Mellon, "this isn't life threatening but it's a black eye," said CLSA Ltd. banking analyst Mike Mayo. "The company is a plumber to the banking industry." Finding a solution is "overdue" for the bank, said Todd Rosenbluth, director of ETF and mutual-fund research at S&P Capital IQ. He called the business of providing accounting for fund firms a competitive one and said BNY's ability to help clients price assets correctly "is paramount to maintaining their relationships." Fund companies affected include Goldman Sachs Group Inc., Guggenheim Investments, Prudential Investments, Federated Investors and Invesco PowerShares. All have had to rely on backup methods for calculating asset values, and are now reconciling the values that they published last week with the new data provided by BNY Mellon. One money-management firm complained that BNY Mellon has frequently provided status updates while leaving open the most important question for investors, whether the overhaul will be complete and the system functional by Monday. On Sunday, Federated said it "has continued to work through issues over the weekend and we expect to have an update for our customers in the morning." Prudential said it had 38 retail funds and two closed-end funds affected out of about 60 at the firm. A Guggenheim representative said the company was "optimistic that NAV pricing will return to a regular schedule very soon." Invesco and Goldman Sachs declined to comment. The problem stemmed from a SunGard Data Systems Inc. accounting system used by BNY Mellon that became "corrupted" last weekend after an upgrade, SunGard said in a statement Thursday. Mr. Hassell said the bank was informed by SunGard on Aug. 24 that the system would be back up and running that afternoon but "the system did not come back as expected and when it did, it had significant performance issues." He said that executives still do not know what the "root cause" was. Executives on Sunday night described the SunGard system as "reliable." SunGard said in a statement Sunday that returning BNY Mellon to "normal operations" is "the highest priority." A SunGard spokesman didn't immediately respond to Mr. Hassell's new comments Sunday night. To deal with the problem, Mr. Hassell said BNY Mellon created war rooms and brought in engineers to work through the problem. The bank plans to hire a third-party firm to review the bank's process. "We deeply regret any disruption to your firms, your funds, and your investors," he said. Executives said once the firm is through last week's backlog, it hopes to have processed net asset values for Monday by that evening or very early Tuesday. BNY Mellon, the largest fund custodian in the world by assets, provides accounting services for money managers. Those services include calculating the price of a fund's securities each day. Pricing is crucial for money managers, which are obliged to provide investors with an accurate price for securities in their funds. The problems have made it much harder for investors in mutual funds and exchange-traded funds who rely on accurate pricing to trade in and out of funds. By last Thursday afternoon, multiple fund companies were reporting discrepancies of 1% or more in the prices they had calculated earlier in the week compared with the new prices from BNY Mellon.

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