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Progress but not yet perfection for auction rate holders

Posted by: Ben Steverman on August 12, 2008

By Aaron Pressman

Massachusetts Secretary of State William Galvin and New York Attorney General Andrew Cuomo have certainly turned up the heat — and fast — on Wall Street firms that shut down the once $330 billion auction rate securities market. Yesterday, Morgan Stanley was the latest to come around, agreeing to buy back at full face value about $4.5 billion of the securities frozen in the accounts of individuals, charities and small to medium-sized businesses. The firm also agreed to pay back any clients who sold the securities at a loss after the market closed down in February.

That followed similar moves by Citigroup on August 7 to buy back about $7.3 billion and UBS saying August 8 it would repurchase about $8.3 billion from individual investors over a two-year period. UBS also said it would buy back another $10.3 billion held by institutional investors starting in June 2010.

And in what looks like the biggest announcement yet, Merrill
Lynch said August 7
it would repurchase about $10 billion of the securities starting next year.

But it’s not all wine and roses for investors holding auction rate securities. Other big players like J.P. Morgan and Wachovia are still being investigated and haven’t, as of yet, agreed to repurchase their clients’ holdings. Harry Newton, author of the web site that’s been tracking the situation closely, says people are having all kinds of issues even at firms that have agreed to the settlements. People with money in family trusts or retirement accounts for sole proprietors may not see their securities repurchased, he worries.

Reader Comments

Morris Armstrong

August 12, 2008 6:06 PM

Msybe I am jaundiced by the past but if a person heard "Default Interest Rate" then they need to know that something isn't as smooth as a CD, not even a seedy CD.

This is one case where the investor wants and is getting there cake and eating it as well.

Spitzer used prospectuses to crucify fund families for failing to monitor such things as short term trading and yet you have another regulator absolving the public from reading and understanding the terms such as AUCTION and DEFAULT RATES.

A lot of capital is being spent letting the public off the hook for something that perhaps they should bear some of the consequences.

john w

January 6, 2010 6:58 PM

E*trade is probably the worst broker in assisting clients with an out to these things. They stonewall, deny, blame others, lie. They are the most intransigent indolent zero customer focused organization I could imagine. No plan to help ARPS holders, and not redeeming unless forced by FINRA. Run, dont walk from E*Turd

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Bloomberg Businessweek’s Ben Steverman focuses on the latest moves in financial markets and emerging trends in stocks, bonds, and funds, always with an eye toward giving readers a better understanding of the sometimes confusing and often chaotic world of money. Standard & Poor’s senior index analyst Howard Silverblatt will also provide his take on companies’ finances and the markets. Voted one of the “Top 100 Finance Blogs” in 2007.

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