Swiss banking giant UBS joined Citigroup, Merrill Lynch and other major banks Friday as regulators announced it had agreed to buy back 19.4 billion dollars' worth of stressed securities.
Citigroup and Morgan Stanley signed up to similar deals with federal and state regulators a day earlier under which they have also agreed to buy back tainted securities which were marketed to tens of thousands of investors and thousands of institutional clients.
Merrill Lynch meanwhile announced Thursday that it would also be buying back a large tranche of auctioned securities as regulators continue to probe the bank's operations.
"There has been an agreement. UBS will pay 19.4 billion dollars to buy back these securities," said a spokesperson for William Galvin, the Massachusetts secretary of the commonwealth.
The official said that the Swiss bank had also agreed to pay civil fines totalling 150 million dollars as part of the broad agreement.
UBS's accord to buy back the auction rate securities (ARS) it was involved in marketing marks the largest such repurchase so far secured by the US authorities. It is unclear how the buybacks may affect banks' finances, but some analysts believe the scale of the deals will impact balance sheets.
"We are consistently working with regulators to a comprehensive solution for all ARS investors," a UBS spokesperson in New York said.
The Swiss bank is expected to release a broader statement later Friday.
At the heart of the settlements, and regulators' probes, are how the banks marketed auction rate securities to clients and investors.
Major US banks and UBS marketed billions of dollars' worth of the complex securities in recent years, but the market for ARS imploded in February amid a broadening credit crunch that contributed to the collapse of the US bank Bear Stearns in March.
Auction rate securities, essentially debt instruments issued by financial firms, municipalities and student loan companies, typically have a fairly lengthy maturity. But the interest rates on such securities can be volatile and change at weekly and monthly auctions run by banks.
The instruments provided a rich business for many banks prior to the market's collapse in February which left panicked investors scrambling to redeem their holdings and nursing paper losses.
Several law firms are already circling the banks involved in the auctions, encouraging investors to sign up to class action lawsuits, suggesting that the banks could face additional legal costs in addition to fines paid to regulators.
The state of Massachusetts's deal with UBS comes a day after US banking behemoth Citigroup agreed to buy back 7.5 billion dollars' worth of auction rate securities it marketed to tens of thousands of investors in a settlement with federal and state regulators.
Hours after Citigroup's announcement Thursday, the investment bank Merrill Lynch said it would buy back 12 billion dollars' worth of securities it had marketed.
"Our clients have been caught in an unprecedented liquidity crisis," Merrill chief executive John Thain said. "We are solving it by giving them the option of selling their positions to us."
In a smaller, but related accord, Morgan Stanley agreed Thursday to reimburse the Massachusetts city of New Bedford and the town authorities of Hopkinton 1.5 million dollars related to its marketing of auction rate securities.
Regulators have been probing how banks and brokerages marketed the securities to investors. New York state attorney general Andrew Cuomo said Thursday that the banks marketed them by suggesting they were similar to cash investments and readily accessible.
But he said the securities were illiquid and could not be quickly redeemed.
The settlements have been reached as UBS, Citigroup and Merrill vie to shake off billions of dollars in losses tied to ailing mortgage investments and the sweeping credit squeeze that has gripped Wall Street in the past year.
Copyright 2008, by
AFP
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