Thursday, December 11, 2008

Auction Rate Securities Update - Citi and UBS Settlements Finalized

Citigroup Inc. and UBS finalized a Securities and Exchange Commission settlement regarding allegations that the banking giants misled investors in the freeze-up of the auction-rate securities market earlier this year.

Nearly $30 billion in securities will be repurchased under the deal, which still needs court approval, $7 billion by Citi and $22.7 billion by UBS.

Tens of thousands of customers will get all of their investment back, the agency noted, in what SEC Chairman Christopher Cox said were the largest settlements in the agency's history.

The companies in August agreed to settle with the agency, defusing a regulatory and legal showdown about sales practices for sales practices for securities that were touted as safe but then couldn't easily be sold and in some cases lost value after the auction-rate market froze in February.

Auction-rate securities are debt instruments whose interest rates are meant to be reset periodically at daily, weekly or monthly auctions. Auctions began failing in February, driving up interest rates on the securities while leaving investors locked into long-term investments that had been promoted as safe and liquid.

Four other banks have yet to finalize their deals with the SEC -- Bank of America Corp., Royal Bank of Canada, Merrill Lynch & Co. and Wachovia Corp. They agreed in recent months to repurchase nearly $25 billion, combined, of auction-rate securities.

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