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UBS Will Buy Back Auction Rate Securities for $19.4 Billion

UBS Will Buy Back Bonds for 19.4 Billion
By Beth Healy
August 8, 2008
Boston Globe

State and federal regulators have reached a $19.4 billion agreement with UBS Financial Services Inc. to settle charges that the firm misled investors into buying bonds that were far riskier than advertised, according to people briefed on the talks.

The deal would require the Swiss bank to buy back the investments, called auction-rate securities, which were widely sold on Wall Street as safe and cash-like until the $330 billion market collapsed in February. The firm also agreed to pay $150 million in fines, split between Massachusetts and New York.

The settlement is scheduled to be disclosed this morning by state regulators and the US Securities and Exchange Commission.

The UBS deal is the largest so far in the nationwide investigation of these investments, which have trapped thousands of investors and caused havoc among student lenders and nonprofits. The firm was facing fraud charges brought by Massachusetts Secretary of State William F. Galvin, who led the UBS investigation, and by New York Attorney General Andrew M. Cuomo. Galvin alleged that top UBS executives knew the auction-rate market was failing but did not inform many customers.

The firm has also paid about $40 million to settle findings by Massachusetts Attorney General Martha Coakley that it illegally sold auction-rate bonds to 21 towns and cities and the Massachusetts Turnpike Authority.

UBS declined to discuss the settlement talks but said in a statement, "We are consistently working with regulators toward a comprehensive solution for all auction-rate investors."

Pictures at an Exhibition of a Housing Slump

Merrill Agrees to Buy Back 10 Billion in Illiquid Auction Rate Securities (Starting in 2009)

So who is picking up this tab on behalf of the taxpayers, Ben or Hank?

Merrill Lynch To Buy Auction Rate Securities Positions From Its Retail Clients

NEW YORK, August 7, 2008 - Merrill Lynch today announced that effective January 15, 2009 and through January 15, 2010 it will offer to buy at par auction rate securities sold by it to its retail clients.

"Our clients have been caught in an unprecedented liquidity crisis," said John A. Thain, chairman and chief executive officer. "We are solving it by giving them the option of selling their positions to us."

"We have made tremendous strides in working with issuers during the last five months; over 40% of our clients' auction rate holdings have been liquidated," said president of Global Wealth Management Robert J. McCann. "But we are not satisfied with this pace, even though the marketplace continues to move forward and we expect issuer redemptions to accelerate with time. With this offer, we continue to put the interests of our clients first."

Merrill Lynch acknowledges the important role being played by the SEC, New York State Attorney General Cuomo, the Massachusetts Securities Division and the North American Securities Administrators Association on these issues. Merrill Lynch also will continue to work closely with and encourage auction rate securities issuers in their restructuring efforts to resolve the outstanding liquidity issues for all of Merrill Lynch's retail and institutional clients.

Merrill Lynch's action creates liquidity for more than 30,000 clients who hold municipal, closed-end funds and student loan auction rate securities. Merrill Lynch retail clients currently hold an estimated $12 billion in auction rate securities, which Merrill Lynch expects to be reduced to under $10 billion by January 2009 as a result of announced and anticipated issuer redemptions. In addition to its offer to buy auction rate securities, Merrill Lynch will continue to actively provide clients with attractive loan arrangements to give them needed liquidity.

Under the plan announced today, retail clients of Merrill Lynch would have a year, beginning on January 15, 2009 and ending January 15, 2010, in which to sell Merrill Lynch their auction rate securities, if they so wish. Retail clients include individuals, charitable institutions and many family-owned and small businesses. Auction rate securities that are the subject of pending issuer redemptions or successful auctions will not be eligible for purchase by Merrill Lynch.

The auction rate securities that are owned by Merrill Lynch's clients are predominantly rated AAA and are not credit-impaired. Merrill Lynch does not expect its purchase of auction rate securities in 2009 through 2010 to have a materially adverse impact on its capital ratios, liquidity, or consolidated financial performance.