December 11 2008
By Lis Rappaport
Under final settlements announced Thursday with regulators that include the Securities and Exchange Commission, New York Attorney General Andrew Cuomo and state securities regulators, the two banks agreed to buy back billions of dollars of illiquid auction-rate securities from hundreds of customers. Those customers have been unable to sell the securities, which they thought were as good as cash.
Citigroup already has bought back $6.2 billion of auction-rate securities out of an estimated $7 billion covered by the settlement. The New York bank is working to clean up problems for clients that have more than $10 million at Citigroup, said a company spokesman.
On Oct. 31, UBS started to make a dent in paying back $8.3 billion of auction-rate securities held by its private clients. Thus far, the Swiss bank is buying back auction-rate securities for clients or charities with $1 million or less in money held at the firm. Starting in January, UBS will begin buying back the securities from clients with more than $1 million at the firm. UBS has until 2010 to buy back the $10.8 billion of securities held by larger clients.
UBS declined to specify exactly how much it has bought back so far.
The remaining 10 firms that have agreed with Mr. Cuomo and state securities regulators to buy back more than $40 billion of auction-rate securities from customers will finalize agreements soon as well, said a spokesman for Mr. Cuomo.
Four banks haven’t finalized deals with the SEC, including Bank of America Corp., Royal Bank of Canada, Merrill Lynch & Co. and Wachovia Corp. They have agreed to repurchase a total of nearly $25 billion in auction-rate securities.
The settlement agreements, which began in August, defused a regulatory and legal showdown about sales practices for securities that were touted as safe and tantamount to cash, but couldn’t easily be sold and lost value in some cases.