Bank of America agrees to buy back $4.8 billion in auction rate securities
11 Sep 2008
Another Wall Street major has now agreed to settle on the contentious issue of auction rate securities (ARS). Bank of America Corp. (BoA) has agreed to repurchase at least $4.8 billion in ARS under a settlement with Massachusetts Secretary of the Commonwealth William Galvin.
The state investigation was reported earlier this month when Galvin had charged Merrill Lynch with fraud. (See: Merrill Lynch charged with auction rate securities fraud in Massachusetts)
The settlement covers all illiquid auction-rate securities sold to BoA retail customers nationwide. It also includes securities owned by small-business customers who have up to $10 million on deposit and charitable organizations with up to $25 million on deposit.
The securities owned by retail investors and small businesses carry a purchase price of at least $4.8 billion, a spokesman at Galvin's office said. Although Galvin expressed happiness with the settlement, he pointed out ''these folks have been without their money for many months.''
In a written statement, BoA said the settlement offer will cover about $4.5 billion in auction-rate securities held by an estimated 5,500 BoA customers. The bank said it expects to record a pretax charge of $275 million in connection with the purchase of auction-rate securities from retail clients.
''With this settlement, thousands of Bank of America clients will be provided with access to billions of dollars in funds that have been frozen in the auction-rate securities market,'' Galvin said in a written statement.
However, BoA's settlement with Massachusetts does not preclude further actions by other states or the Securities and Exchange Commission (SEC), Galvin's spokesman said. At the same time, BoA neither admits nor denies wrongdoing.
Auction-rate securities are debt investments issued by municipalities, student-loan agencies, closed-end funds and others, with interest rates that are reset at weekly or monthly auctions run by investment firms. The $330 billion market collapsed in February, when investors became alarmed at the prospects of corporate borrowers covering debt service on the securities.
In recent weeks, various regulators have reached settlements with firms including Citigroup Inc., UBS AG, JPMorgan Chase & Co. and Merrill Lynch & Co. that have resulted in deals to repurchase more than $50 billion of the securities.
Bank of America spokeswoman Shirley Norton last week said the bank had been in talks with regulators in New York, Massachusetts and other states and the US Securities and Exchange Commission in hopes of reaching an agreement to provide "liquidity relief" to its customers who hold the securities.
(Also see: Morgan Stanley joins Citigroup, UBS and Merrill in buying back auction-rate securities / UBS follows Citigroup to settle auction securities fraud / Citigroup to settle with authorities on securities fraud)
