Thursday, August 21, 2008

Auction Rate-Securities: Merrill Lynch Brokers Demand Buyback of ARS from PIMCO and Blackrock

Merrill Lynch brokers are pressing fund managers Pacific Investment Management Co. and BlackRock Inc. to buy back auction-rate securities, aiming to speed up client bailouts in the frozen market.

More than 300 brokers have e-mailed Pimco saying its executives may "no longer be welcome in our offices" unless they redeem the securities, according to Erick Ellsweig, a Merrill financial adviser in North Carolina who spearheaded the e-mail campaign. Will Fuller, head of distribution for Merrill's U.S. brokerage arm, wrote to BlackRock on Aug. 15 saying its failure to offer redemptions in the past two months has created "dissatisfaction in our financial advisers and clients."

Merrill's brokers, who make up the biggest U.S. financial advisory network, say they're trying to help clients stuck with more than $10 billion of securities in the $200 billion auction- rate market. Pimco, which manages the world's biggest bond fund, and BlackRock, the largest publicly traded U.S. fund manger, used the market to finance their closed-end mutual funds, and Merrill brokers sold the investments to its customers.

"The brokers at Merrill are very upset about the lack of access to capital for their clients, and they have been rattling the cage," said Geoffrey Bobroff, a mutual-fund consultant in East Greenwich, Rhode Island.

The auction-rate market seized up in February with $330 billion in securities when the credit crisis prompted Wall Street firms to stop supporting the periodic auctions in which the securities were bought and sold. New York Attorney General Andrew Cuomo has accused Merrill and other brokers of improperly peddling them as investments that were as liquid as cash. Merrill has said it's cooperating with government probes.

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