Following on the heels of Citigroup’s tentative settlement with federal and state regulators, Merrill Lynch has announced that it will offer to buy-back, at face value, auction-rate securities which were sold to individual investors, charitable institutions and small businesses. Merrill Lynch’s offer will be effective January 15, 2009 and run through January 15, 2010 according to the firm. Merrill has estimated that this offer will cost the firm approximately $10 billion.
Merrill’s actions may be indicative of the types of settlements that other major Wall Street firms will try to negotiate in the coming days with state and federal regulatory authorities. At present, numerous other firms are the subject of ongoing regulatory investigations. Those firms include the following: Morgan Stanley, Goldman Sachs, Bank of America, JP Morgan Chase, RBC, UBS, Wachovia/A.G. Edwards, Lehman Brothers, Oppenheimer, and Credit Suisse, among others.
Unlike the tentative Citigroup settlement, Merrill’s offer has not been approved by state and federal regulators and may not resolve the firm’s auction-rate securities regulatory issues. In fact, Massachusetts’ Secretary of State, William Galvin, one of the leaders of the state task force investigating the sale of auction-rate securities who recently sued Merrill Lynch over auction-rate securities, stated that “Its not satisfactory from our point of view in terms of the timeliness of redemption. Therefore, clearly, we’ll pursue our complaint.” Among other things, Merrill still must negotiate any regulatory sanctions.
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