Banking & Capital Markets

BofA Says Yes to ARS Buyback

The bank will repurchase $4.5 billion worth of the securities to settle charges by the Massachusetts Securities Division; an SEC settlement is expe...
Stephen TaubSeptember 10, 2008

Yet another investment firm, Bank of America, has agreed to repurchase auction rate securities that it sold to retail customers.

The bank’s agreement in principle with the Massachusetts Securities Division covers about $4.5 billion in ARS held by an estimated 5,500 customers. Like other banks that have made similar concessions, BofA was accused of misrepresenting the degree of risk to customers buying ARS.

“Bank of America’s offer will provide liquidity to individual investors and certain businesses and charitable organizations that have been affected by unprecedented conditions in the global credit markets,” the company said in a press release.

Meanwhile, the Securities and Exchange Commission said it expects to announce a preliminary settlement with Bank of America relating to the regulator’s ongoing ARS investigations.

“The SEC investigations have resulted in preliminary agreements that represent the biggest financial settlements and returns of customer money in Commission history,” said Linda Chatman Thomsen, director of the SEC’s Division of Enforcement. “We are grateful for the assistance and close cooperation from state regulators and FINRA [the Financial Industry Regulatory Authority] in helping us return tens of billions of dollars to hundreds of thousands of investors even as our investigations of potential corporate and individual wrongdoing continue.”

Under its agreement to buy back ARS, Bank of America said it neither admits nor denies allegations of wrongdoing.

It added that it expects to record a pretax charge of approximately $275 million in connection with the purchase of ARS. The difference between the purchase price and the estimated value of the securities accounts for most of that.

In the past few weeks, some of the world’s largest banks, including Citigroup, UBS, J.P. Morgan Chase, and Merrill Lynch have agreed to settlements that have resulted in agreements to repurchase more than $50 billion worth of the securities.