Citigroup, the leading underwriter of auction-rate bonds since 2000, announced in its quarterly earnings report that it has taken a loss of $1.5 billion on its inventory of these securities. According to Michael Quint of Bloomberg.com, the writedown amounted to 20% of the $8.1 billion in auction-rate securities held by Citigroup at the end of 2007.
Most of the loss was in student-loan backed auction-rate securities whose value dropped $971 million. The value of municipal auction-rate debt fell $355 million while tax-exempt and other assets fell $132 million. Citigroup’s holdings of auction-rate securities were valued at $6.1 billion as of March 30, 2001.
Most other investment banks are still valuing auction-rate securities at face value. UBS, however, has started writing down the value of auction-rate securities held in its customer accounts. Reports are that UBS customers are taking haircuts ranging from 3 to 30% on their auction-rate securities.
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