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Swiss bank UBS has agreed to buy back $19.4 billion of debt securities whose value collapsed during the global financial crisis and to pay $150 million in fines to settle charges it misled investors, Massachusetts' top securities regulator said.
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Adding to concern over the deepening legal fallout of auction-rate securities that UBS and other banks marketed as being as safe and liquid as cash, the Bank of New York Mellon said one of its units was under investigation by U.S. regulators over auction-rate transactions.
This comes a day after Citigroup [C
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] and Merrill Lynch [MER
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] said they would buy back almost $20 billion of such securities between them.
The UBS agreement, confirmed by Massachusetts Secretary of State William Galvin, could force Europe's biggest casualty of the markets turmoil to make further write-downs on the value of its assets beyond the $37 billion it has already taken.
JP Morgan reckons UBS [UBS
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] could face $1 billion in write-downs. Others estimated that such a move could cost UBS $1.8 billion.
UBS now has a bill for the securities at face value even though they are worth less.
The $150 million in fines would be split between Massachusetts and New York, which accused UBS of steering broker clients into auction-rate securities that became impossible to sell when the credit market froze. (See the accompanying video for an exclusive interview with New York Attorney General Andrew Cuomo for more on the state's accusations.)
"It's obvious in the case of UBS, and we have internal documents that prove this, that they were well aware of the problems in the marketplace, that they manipulated them,'' Galvin told Reuters in an interview.
"Individuals who were orchestrated a campaign to sell these instruments to unsuspecting investors were in fact unloading their own personal inventory because they didn't want to suffer losses,'' Galvin added, describing the fallout over auction-rate securities as a national problem that festered for months.
"We're talking about $19.4 billion that we're seeking to get returned. That money has effectively been out of the American economy for several months. That has caused significant economic damage in this country.''
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