Wall Street’s got a whole new thorn in its side: auction-rate securities.
As you might know, the $330 billion market for these debt instruments completely froze in February. To the best of our knowledge, there hasn’t been a bid for one of these puppies in months.
Yesterday, Citigroup reached a sudden settlement with the New York attorney general that orders Citi to buy back $7.3 billion auction-rate securities from retail customers. The N.Y. regulator accused Citi of selling these securities to clients as safe, totally liquid methods of protecting income. Heh… judging by Citi’s quick offer to make a deal, those allegations seem rooted in truth.
Under the agreement, Citi will buy back those ARSs at 100% of their original sale value. Citi’s also agreed to help clients unload (in other words, borrow against or trade for something else) another $12 billion worth of auction-rate securities. It’ll pay regulators a $100 million fine, too… since a good deed by the government should NEVER go unrewarded.
And not long after Citi’s announcement, other auction-rate securities dealers started coming out of the woodwork. Merrill Lynch “volunteered” to buy back $12 billion in ARS. Like Citi, Merrill is being investigated by a Massachusetts regulator for “misstating the stability of the auction market.” Also, like Citi, the rush to make a deal makes Merrill look less than innocent.
And this morning, The Boston Globe rumored that UBS would soon launch a $19 billion buyback. Details are the same as Citi and Merrill… state and federal investigations, rushed settlements, shady circumstances.
All the banks involved claim the actual losses on these buybacks will be minimal. We’ll let you know if they’re telling the truth (ha!) this time around. Morgan Stanley is also a big player in the auction-rate securities market, although we haven’t heard much from them yet. Stay tuned.
Also moving the market this morning is the latest Fannie Mae earnings report. Like Freddie earlier this week, Fannie dropped a wretched quarterly statement today. The company shed $2.3 billion in its fourth straight quarterly net loss. That boils down to about $2.54 a share, more than three times the losses Wall Street analysts expected. Also, as with Freddie earlier this week, Fannie announced today that its dividend will be slashed to basically nothing.
Fannie Mae was already down 27% since Freddie’s release on the 6th. This morning, shares have fallen an extra 11%. If there’s any bright side to the government’s impending bailout of Fannie and Freddie, it’s this: By the time Washington finalizes the plan to buy shares, they’ll be very, very cheap.
As you might know, the $330 billion market for these debt instruments completely froze in February. To the best of our knowledge, there hasn’t been a bid for one of these puppies in months.
Yesterday, Citigroup reached a sudden settlement with the New York attorney general that orders Citi to buy back $7.3 billion auction-rate securities from retail customers. The N.Y. regulator accused Citi of selling these securities to clients as safe, totally liquid methods of protecting income. Heh… judging by Citi’s quick offer to make a deal, those allegations seem rooted in truth.
Under the agreement, Citi will buy back those ARSs at 100% of their original sale value. Citi’s also agreed to help clients unload (in other words, borrow against or trade for something else) another $12 billion worth of auction-rate securities. It’ll pay regulators a $100 million fine, too… since a good deed by the government should NEVER go unrewarded.
And not long after Citi’s announcement, other auction-rate securities dealers started coming out of the woodwork. Merrill Lynch “volunteered” to buy back $12 billion in ARS. Like Citi, Merrill is being investigated by a Massachusetts regulator for “misstating the stability of the auction market.” Also, like Citi, the rush to make a deal makes Merrill look less than innocent.
And this morning, The Boston Globe rumored that UBS would soon launch a $19 billion buyback. Details are the same as Citi and Merrill… state and federal investigations, rushed settlements, shady circumstances.
All the banks involved claim the actual losses on these buybacks will be minimal. We’ll let you know if they’re telling the truth (ha!) this time around. Morgan Stanley is also a big player in the auction-rate securities market, although we haven’t heard much from them yet. Stay tuned.
Also moving the market this morning is the latest Fannie Mae earnings report. Like Freddie earlier this week, Fannie dropped a wretched quarterly statement today. The company shed $2.3 billion in its fourth straight quarterly net loss. That boils down to about $2.54 a share, more than three times the losses Wall Street analysts expected. Also, as with Freddie earlier this week, Fannie announced today that its dividend will be slashed to basically nothing.
Fannie Mae was already down 27% since Freddie’s release on the 6th. This morning, shares have fallen an extra 11%. If there’s any bright side to the government’s impending bailout of Fannie and Freddie, it’s this: By the time Washington finalizes the plan to buy shares, they’ll be very, very cheap.
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