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New York reaches deal with major banks

Three banks agree to buy back stressed securities worth billions

New York reaches deal with major banks

New York officials said Thursday they had reached a settlement with Merrill Lynch, Goldman Sachs and Deutsche Bank under which the three banks have agreed to buy back stressed securities from investors.
The settlements covering billions of dollars' worth of securities were announced by the office of New York state attorney general Andrew Cuomo after investors claimed they had been misled in purchasing so-called auction rate securities.
Merrill Lynch has agreed to pay a civil fine of US$125 million, Goldman Sachs will pay a fine of US$22.5 million and German banking giant Deutsche Bank will pay a penalty of US$15 million, Cuomo told reporters in a teleconference.
The settlements relate to auction rate securities and how they were marketed to investors. Regulators say the securities were marketed as liquid investments, but they said such securities are not liquid and can be difficult to redeem.
The market for auction rate securities imploded in February as a widening credit crunch tightened its grip on U.S. financial markets, leaving investors nursing substantial losses.
Cuomo's office said Merrill had agreed to repurchase between 10 and 12 billion dollars' worth of the tainted securities from investors while Goldman Sachs will buy back US$1.5 billion and Deutsche Bank will repurchase US$1.0 billion.
The New York state accord was announced shortly after regulators in the state of Massachusetts unveiled a separate settlement with Merrill Lynch under which the investment bank also agreed to buy back stressed securities from investors.
Massachusetts's regulators claimed in a lawsuit earlier this year that Merrill had improperly marketed auction rate securities because it assured clients they were liquid, money-market instruments almost as accessible as cash.
Auction rate securities, essentially debt instruments issued by financial firms, municipalities and student loan companies, typically have a fairly lengthy maturity. But the interest rates on such securities can change at auctions run by the banks.
Another large U.S. bank, Wachovia, agreed earlier this month to buy back up to nine billion dollars' worth of auction rate securities it had marketed before February's market collapse in a pact with the Securities and Exchange Commission.
Citigroup has also agreed to buy back 7.5 billion dollars' worth of auction rate securities.


Updated : 2021-05-09 19:54 GMT+08:00