ANTIQUES SHOPS

Over the past year, BNY Mellon has faced claims - from customers, the Justice Department, and state attorneys general - that the bank improperly charged customers for currency trading. Its settlement with Prudential indicates that the bank may be willing to settle with at least some customers.

The deal came to light in an amended lawsuit that the Justice Department filed earlier this month against BNY Mellon.

BNY Mellon agreed to repay more than half the revenue it generated from the Prudential currency trades in question, according to the amended Justice Department complaint.

Elsewhere in the complaint, the Justice Department said BNY Mellon generated more than $28 million from the trades with Prudential. A deal came in April after the insurer complained, and a bank executive said it heard "loud and clear."

The Justice Department in October sued BNY Mellon in federal court in New York, alleging the bank defrauded federally insured banks in handling foreign exchange. The Justice Department and state attorneys general have alleged that BNY Mellon clients were often given the worst rates of the trading day, or almost the worst rates, when they traded currency with the bank.

A Prudential spokesman declined to comment. BNY Mellon said in an emailed statement on Monday that it has done nothing wrong, and will continue to defend itself vigorously. It declined to comment about Prudential specifically, but said it "will be pragmatic in resolving these issues."

EXAMPLE

A foreign exchange trade for Prudential's trades was used as an example in the Justice Department's amended lawsuit this month. The U.S. government described an Oct. 23, 2008, transaction that BNY Mellon handled for Prudential in which it priced a deal that was "very close to the worst rate of the day."

"If the transaction had been performed according to best execution standards, per the bank's representations, Prudential would have received a more favorable rate," the lawsuit said.

Last month, BNY Mellon won a court victory when a state judge in Virginia dismissed a lawsuit that alleged the bank overcharged for currency transactions handled for pension funds in Virginia.

But in California, BNY Mellon won only a partial victory in a similar lawsuit, with some charges being thrown out and some not.

The Justice Department's lawsuit alleges that BNY Mellon defrauded custodial clients between at least 2000 and 2011 when it exchanged currencies using standing instruction.

From 2007 to 2010, the bank generated more than $1.5 billion from its top 200 standing-instruction clients, the lawsuit alleges. An appendix to the lawsuit lists state, local and corporate clients who used the bank to handle currency trades using standing instruction, a program allowing the bank to consistently handle trades for the client.

The Justice Department's latest lawsuit also singles out BNY Mellon executive David Nichols, alleging he "fraudulently misled customers about the foreign exchange service" the bank provided to clients.

BNY Mellon said in an emailed statement to Reuters that "the belated decision to single out one employee is deeply troubling." A lawyer for Nichols declined to comment.

A Justice Department spokeswoman declined to comment.

STANDING INSTRUCTION CLIENT

In 2011, as BNY Mellon drew scrutiny for how it traded money, Prudential representatives met with BNY Mellon executives to discuss how BNY Mellon determined its currency-exchange costs. The Justice Department lawsuit alleged that BNY Mellon didn't disclose it used at or near a least-favorable rate for clients.

BNY Mellon, the lawsuit alleged, "intentionally" sought to "mislead Prudential so that it would remain a standing instruction client. Indeed, Prudential would have looked elsewhere for foreign exchange services had (BNY Mellon) been truthful."

The two financial firms continued to discuss the currency-exchange costs, resulting in an August 2011 disclosure where BNY Mellon "admitted" it had made more than $28 million in revenue between 2006 and 2011 for handling standing-instruction currency transactions for Prudential. A month later, "representatives of Prudential expressed dissatisfaction with the way Prudential's standing instruction transactions had been priced."

The BNY Mellon executive in charge of the Prudential account "responded that Prudential's message had been heard loud and clear." (Editing by Muralikumar Anantharaman)

The Islamists' self-assurance was contested by the other candidate in the run-off race, a former general who was prime minister when Hosni Mubarak was ousted last year by an army anxious to save itself from the revolution in the streets.

But there was still no result from the two-day poll, although independent officials privately spoke of a likely win for Islamist Mohamed Morsy over military man Ahmed Shafik.

Yet whatever the outcome - and one electoral supervisor said it might not be announced until Thursday - the new president was shorn in advance of much of his power by a decree issued by the ruling Supreme Council of the Armed Forces (SCAF) just as polling stations closed and two days after it had dissolved a new, Islamist-led parliament.

In protest, the liberal urban youth movements which were in the vanguard of protests at Cairo's Tahrir Square 16 months ago, as well as the Brotherhood and other supporters of the uprising, plan a major demonstration there later on Tuesday.

"This decree just makes plain the hegemony of SCAF," said Khaled Ali, a liberal lawyer eliminated in the first round of voting. "This decree strips the president of the powers he was elected to have and gives those to the military council."

The constitutional declaration, one more twist in Egypt's halting progress toward democracy since the Arab Spring, effectively means that a July 1 deadline promised for a handover to civilian rule has been reduced to semantics, since the new civilian president looks to be very close to powerless.

Liberals and Islamists called it a "military coup".

U.S. "DEEPLY CONCERNED"

Washington, which only in March agreed to hand over $1.3 billion in annual aid to the biggest army in the Middle East, was far from pleased - not least, it seemed, because the man in charge of the council, Field Marshal Hussein Tantawi, failed to mention his plan when assuring Defence Secretary Leon Panetta on Friday that the target date for civilian rule would be met.

"We are deeply concerned about the new amendments to the constitutional declaration, including the timing of their announcement as polls were closing," a Pentagon spokesman said, adding that he did not think Tantawi had alerted Panetta when they spoke.

"We believe Egypt's transition must continue and that Egypt is made stronger and more stable by a successful transition to democracy," spokesman George Little said. "We support the Egyptian people in their expectation that the (SCAF) will transfer full power to a democratically elected civilian government, as the SCAF previously announced."

Egyptian democracy was relatively low among U.S. priorities during the 30-odd years Washington was funnelling aid and arms to a Cold War ally which led Arab peace moves toward Israel in 1979 and was later fighting a common enemy in militant Islam.

But since Egyptians rose up to end six decades of military rule, U.S. leaders have pledged to support them, even if that means accepting a role for the Brotherhood, a long-suppressed movement that wants Islamic law and which spawned offshoots such as the militant Palestinian Hamas movement across the Middle East.

Washington may have limited room for leverage on Tantawi, a familiar figure to U.S. commanders after his 20 years as Mubarak's defence minister. Little said the Pentagon wanted such close relations to continue and there was no mention of possible sanctions. "We're going to monitor events closely," he said.

NEW RULES

The SCAF announced the new regulations in its role as guardian of a revolution which some of its standard-bearers now fear has fallen victim to a deadlock between the army and religion which has characterised Egypt since colonial times.

The president, whose powers had not previously been defined following the suspension of constitutional provisions used in the Mubarak era, can only appoint a government whose every law must be endorsed by SCAF, which has taken back the legislative powers it had passed to a new parliament elected in January.

A new timetable set down for writing a constitution, passing it by referendum and then electing a parliament could leave Tantawi in charge until 2013, according to the legal text.

Morsy attracted support from many who reject his religious agenda and the imposition of Islamic law but wanted to bar the way to Shafik, 70, whom they see as the heir to the old regime.

As Islamists cheered, unemployed Mohamed Mahmoud, 28, did not share their joy: "I voted for Morsy but I can't say I'm happy," he said. "I'm still afraid of both and what they may do.

"I don't want an Islamic state or a new Mubarak state."

The order indicated that the army, which controls swathes of Egypt's economy, has no intention of handing substantial power to its old Islamist adversary and may be hoping that public disillusionment with the Brotherhood's performance will reduce its influence on the new constitution and the next parliament.

Israel fears growing hostility in Cairo and said on Monday an Israeli and two militants were killed in an attack on its Sinai desert border where the Jewish states is building a fence.

"We can see a disturbing deterioration in Egypt's control of the Sinai's security," Israeli Defence Minister Ehud Barak said.

"Whoever wins, we expect him to take responsibility over all of Egypt's international commitments, including the peace treaty with Israel and security arrangements in the Sinai, and to put an end to these attacks swiftly."

Morsy, though allied with figures who call for Israel's destruction, has said he would respect Egypt's treaty with the Jewish state, on which much of Cairo's U.S. aid depends.

The Brotherhood has contested the army's power to dissolve the present parliament. It has warned of "dangerous days" ahead.

But few see the Islamists, who hung back at the start of the revolt, launching a violent grab for power soon.

The failure of the parliament to draft a constitution - liberals accused the Islamists of religious zealotry - has left SCAF warning it may step in. Some lawmakers from the dissolved assembly, defying an army ban on entering the parliament building, met there to debate a new constitution on Monday.

But many expect SCAF to name its own drafting panel soon. It has also formed a new National Defence Council, to include the civilian president, but on which soldiers have a majority.

(Additional reporting by Dina Zayed, Tom Pfeiffer, Edmund Blair, Shaimaa Fayed, Patrick Werr, Tom Perry, Alastair Macdonald and Samia Nakhoul in Cairo and David Alexander in Washington; Writing by Alastair Macdonald; editing by David Stamp)