US: Wachovia to bail out clients holding auction rate securities

Publisher Name: 
AFP

WASHINGTON (AFP) - Wachovia has become the latest US bank to agree
to buy back billions of dollars of tainted auction rate securities that
it sold before a market collapse in February, US officials announced
Friday.

The Securities and Exchange Commission said Wachovia had
agreed in a preliminary deal to buy back up to nine billion dollars in
auction rate securities that it marketed to investors.

Other
banks, including JPMorgan Chase, Morgan Stanley, Citigroup and Swiss
banking giant UBS have already agreed to repurchase billions of
dollars' worth of the stressed securities amid an ongoing government
probe.

"This agreement in principle with Wachovia, if approved by
the commission, will permit tens of thousands of Wachovia investors to
get their money back," said Linda Chatman Thomsen, the head of the
SEC's enforcement division.

Federal and state regulators claim
Wachovia and other banks marketed the securities as being highly liquid
and as accessible as cash, but they in fact were difficult to redeem.

US
banks marketed billions of dollars' worth of the securities to
investors in recent years, but the market for auction rate securities
imploded in February as a continuing credit crunch worsened.

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.

Many investors sustained hefty losses after the market for the securities collapsed in February.

The
SEC, which has yet to formally approve the deal with Wachovia, said
that Wachovia could still face a civil fine which will be determined in
part on how well the bank fulfils its obligations under the pact
announced Friday.

AMP Section Name:Financial Services, Insurance and Banking