Citi settles securities case, to unfreeze $19.5 bn bonds
Citigroup, the largest US bank by assets, agreed to buy back or help clients unload $19.5 billion in auction-rate securities.
By Bloomberg |
NEW YORK: Citigroup, the largest US bank by assets, agreed to buy back or help clients unload $19.5 billion in auction-rate securities and pay a $100 million fine to settle US regulatory claims it improperly saddled customers with untradeable bonds. Citigroup will buy back about $7.5 billion in securities from individual customers, charities and small businesses under a settlement with New York State Attorney General Andrew Cuomo, the Securities and Exchange Commission and a group of states, led by Texas, the SEC said in a statement on Thursday. It must also start ���restoring liquidity��� to more than 2,600 institutions holding about $12 billion of the instruments, the SEC said.
Auction-rate securities are bonds or preferred shares whose interest rates are reset by periodic bidding run by dealers. Firms including Citigroup abandoned their routine role as buyers of last resort for the debt in mid-February as demand dried up, allowing the market to collapse and leaving investors stuck in what had been pitched to them as money-market-like instruments.
Citigroup is the first Wall Street firm to settle federal claims amid a probe into how banks sold auction-rate securities before the $330 billion market collapsed in February. The accord may set a precedent for negotiations with firms including UBS, which has been named in civil complaints by Cuomo and authorities in Massachusetts.
Citigroup, as part of its settlement with Cuomo, also agreed to reimburse refinancing fees to municipal borrowers that issued auction-rate securities through the bank since August 1, 2007, according to a statement released by the New York attorney general. Citigroup neither admitted nor denied allegations of wrongdoing. Securities eligible for the buyback have a face value of $7.3 billion and a market value about $500 million less than the purchase price.
Municipal borrowers whose interest costs at failed auctions rose to as high as 20% refinanced or made plans to replace at least $96.2 billion, or 58%, of their $166 billion in the market. At least $23.6 billion, or 37%, of the closed-end funds��� preferred shares have been redeemed or tagged for replacement, according to Thomas
J Herzfeld Advisors, and there also have been about $3 billion in student-loan refinancings.
That leaves as much as $207 billion in mostly frozen securities left in the market, of which the $19.5 billion cited in the Citigroup settlement would represent about 9%.
Auction-rate securities are bonds or preferred shares whose interest rates are reset by periodic bidding run by dealers. Firms including Citigroup abandoned their routine role as buyers of last resort for the debt in mid-February as demand dried up, allowing the market to collapse and leaving investors stuck in what had been pitched to them as money-market-like instruments.
Citigroup is the first Wall Street firm to settle federal claims amid a probe into how banks sold auction-rate securities before the $330 billion market collapsed in February. The accord may set a precedent for negotiations with firms including UBS, which has been named in civil complaints by Cuomo and authorities in Massachusetts.
Citigroup, as part of its settlement with Cuomo, also agreed to reimburse refinancing fees to municipal borrowers that issued auction-rate securities through the bank since August 1, 2007, according to a statement released by the New York attorney general. Citigroup neither admitted nor denied allegations of wrongdoing. Securities eligible for the buyback have a face value of $7.3 billion and a market value about $500 million less than the purchase price.
Municipal borrowers whose interest costs at failed auctions rose to as high as 20% refinanced or made plans to replace at least $96.2 billion, or 58%, of their $166 billion in the market. At least $23.6 billion, or 37%, of the closed-end funds��� preferred shares have been redeemed or tagged for replacement, according to Thomas
J Herzfeld Advisors, and there also have been about $3 billion in student-loan refinancings.
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That leaves as much as $207 billion in mostly frozen securities left in the market, of which the $19.5 billion cited in the Citigroup settlement would represent about 9%.
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