The nearly $35 billion in auction-rate securities-related frozen debt that Wachovia Corp, Citigroup Inc, JP Morgan Chase & Co, UBS AG, and Morgan Stanley have agreed to repurchase consists of less than 18% of the $200 billion that New York Attorney General Andrew Cuomo says is outstanding. Charities, individuals, and small businesses are the ones expected to benefit from the repurchase agreements made with the Wall Street firms.
Meantime, corporate finance officers that also purchased auction-rate securities because banks had marketed the securities to them as safe investments have not been offered the same commitment. Only Wachovia and UBS have agreed to buy back securities from institutional investors-Wachovia has set its date in June 2009, while UBS said it would begin repurchasing frozen securities from institutions starting June 2010. Google Inc, United Parcel Service Inc., and Texas Instruments Inc. are among the companies that have taken significant markdowns on over $32 billion in auction-rate securities holdings.
During the press conference announcing that Morgan Stanley & JP Morgan agreed to buy back $7.5 billion of the auction-rate securities, Cuomo said that he was making it a priority to return the money of retail investors. He also said that institutional investors needed “to be fairly compensated.” He and other state securities regulators have called on Wall Street firms to help institutional investors convert their securities into cash.
However, the settlements reached could worsen the situations for companies with debt. If banks buy back the securities from individual investors and end up selling the securities at reduced rates, companies may have to mark down their portfolios even more.
Related Web Resources:
Attorney General Cuomo Announces Settlements with JP Morgan and Morgan Stanley to Recover Billions for Investors in Auction Rate Securities, OAG.NY.US
Cuomo Snubs Treasurers in Auction-Rate Debt Rescue, Bloomberg.com, August 21, 2008
Many institutions are expected to go to arbitration to seek damages caused by “fraudulent” auction-rate securities sales. Please contact Shepherd Smith Edwards & Kantas LTD LLP if you or your company suffered losses because you were given misleading information about the auction-rate securities market.