- The Washington Times - Saturday, August 9, 2008

NEW YORK | Swiss banking giant UBS AG agreed Friday to buy back nearly $20 billion in auction-rate securities from investors, a day after Citigroup Inc. reached a similar settlement with regulators for $7 billion as part of a wide-ranging investigation into the collapse of the market for the bond-like investments.

UBS will repurchase all $18.6 billion of the securities it sold and pay a fine of $150 million as part of an investigation led by New York Attorney General Andrew Cuomo into whether banks misled customers about the safety of the securities.

Mr. Cuomo said his investigation into the troubled securities is continuing. Of the two settlements reached in as many days with UBS and Citigroup, he said: “We tend to start with the largest because that can make the greatest impact.”

As part of its settlement announced Thursday, Citigroup will also pay fines of $100 million.

The bond-like investments were widely held by many institutional and individual investors and were seen as highly liquid, money market-like investments. However, the market for them collapsed in February amid the downturn in the broader credit markets.

The $330 billion auction-rate securities market involved investors buying and selling instruments that resembled corporate debt, except the interest rates were reset at regular auctions, some as frequently as once a week. A number of companies invested in the securities because they could treat their holdings almost like cash.

Regulators have been investigating the collapse in the market to determine who was responsible for its demise and how to make investors whole.

“What we’ve established is the institutions are responsible,” Mr. Cuomo said. “People will get their money, and get it back in the immediate future.”

More than 80,000 investors nationwide are affected by the two agreements.

UBS agreed to repurchase all of the auction-rate securities it sold to retail customers, charities and small and mid-size businesses beginning Jan. 1. That group holds about $8.3 billion in securities. Within that group, customers with less than $1 million in assets at UBS will be able to sell the securities back to the bank beginning Oct. 31.

The bank will begin repurchasing securities from institutional investors — worth a total of about $10.3 billion - beginning in June 2010.

Any customers who sold the securities at a loss after the market failed Feb. 13 will be reimbursed.

The settlements with UBS and Citigroup provide parameters to other banks on how to resolve situations surrounding their sales of auction-rate securities, Mr. Cuomo said.

Bank of America Corp. and Bank of New York Mellon Corp. have both disclosed they received requests for information about the sale of auction-rate securities, and Merrill Lynch & Co. has said it will voluntarily repurchase $12 billion of the securities from clients.

Mr. Cuomo noted Merrill’s repurchase program falls short of the steps agreed to by UBS and Citigroup, and his office will continue to investigate the bank.

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