Merrill Lynch said Thursday it will follow Citigroup in cobbling together a settlement for clients who bought auction rate securities, amid growing pressure from its own brokers to pay their clients back.
Confirming a report on CNBC that Merrill was considering such a move, the firm said that effective January 15, 2009, and through January 15, 2010, it will offer to buy at par auction rate securities sold by it to its retail clients.
"Merrill Lynch retail clients currently hold an estimated $12 billion in auction rate securities, which Merrill Lynch expects to be reduced to under $10 billion by January 2009 as a result of announced and anticipated issuer redemptions," the firm said in a statement.
Last week, William Galvin, the Massachusetts secretary of state, accused Merrill Lynch of fraud, alleging that its brokers knowingly misled investors who put money into auction rate securities that their money could be easily redeemed at weekly or monthly auctions.
Merrill Lynch denied the charges, and said its brokers acted honestly, alerting clients who bought the securities that changes in the market could prevent such auctions from occurring.
As CNBC reported Thursday, many brokers inside Merrill Lynch complained to senior management, asking them to follow in Citigroup's footsteps and simply settle clients' claims, because they feared a backlash from investors.
"Our clients have been caught in an unprecedented liquidity crisis," John Thain, chairman and chief executive officer of Merrill, said in a statement. "We are solving it by giving them the option of selling their positions to us."