Friday, August 8, 2008

ARS Crisis Over?

Well, in just a few short days (OK, a week) it looks like the ARS crisis is coming to a close.

On Thursday, Citigroup settled state and federal claims, agreeing to buy $7.3 billion of the debt from individual investors and pay $100 million in fines, as well as pledging to help 2,600 institutional customers unload $12 billion of securities.

Today, UBS agreed to pay $150 million in fines and begin buying back $18.6 billion in failed auction-rate securities. UBS will purchase $8.3 billion of the securities from its clients beginning on Oct. 31 under a settlement with New York State Attorney General Andrew Cuomo, the Securities and Exchange Commission, and a group of other state regulators, according to terms of the settlement announced today. The bank must also help its institutional clients sell an additional $10.3 billion in securities, and may have to buy back the bonds if they fail to find a market.

After screwing around for 6 months, the wirehouses folded, and we assume the rest will enter into similar agreements - at least the ones where the regulators were able to find some evidence of fraud.

Two interesting side notes - CNBC is reporting the Citigroup settled because of pressure from their brokers who sold these securities. While that was a rumor, hats off to the Citigroup brokers if that rumor is true. Citigroup brokers (and UBS brokers) were played by the bond desks, and were pawns in a flat out financial grab, at least according to the regulatory complaint filed against UBS.

Now, who is going to compensate investors for their consequential damages. How many homes, businesses and investment opportunities were lost?

And how are these firms going to re-gain their reputations? Those emails at UBS were outrageous, and a pure demonstration that UBS, or at least parts of UBS management, do not care one whit about their brokers, or their customers, and dumped, (yes dumped) those securities on an unsuspecting public.

Imagine what would have happened to a smaller firm if it was discovered doing the same thing? Permanent bars, criminal proceedings, and massive personal fines.

Are we going to see that here? Mr. Cuomo?
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