Citigroup agreed Thursday to pay a $100 million fine and buy back more than $7 billion in troubled fixed-income securities from individuals...
NEW YORK — Citigroup agreed Thursday to pay a $100 million fine and buy back more than $7 billion in troubled fixed-income securities from individuals stranded in the investments for most of this year.
The settlement, with New York Attorney General Andrew Cuomo and other regulators, figures to put pressure on other banks to cut similar deals over so-called auction-rate securities, which tumbled in value amid the credit crisis in February.
The deal will help an estimated 40,000 individual investors and others whose holdings have fallen by about $500 million. The nation’s largest banking company agreed to repurchase the securities at face value from all small investors, charities and small businesses.
Merrill Lynch said Thursday it also will buy back auction-rate securities from its clients over a one-year period beginning next Jan. 15. Merrill’s clients own an estimated $12 billion in the securities.
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Customers who earlier sold their holdings at a loss will be made whole, Cuomo said at a news conference. Citigroup promised to repurchase the securities by Nov. 5.
“I can’t tell you how many people across the state and the nation have come up to me and complained about this problem,” Cuomo said. “People say, ‘I want my money back.’ People are getting their money back.”
Banks attracted scores of individual investors to auction-rate securities in recent years by pitching them as safe and easily redeemable but with higher yields than super-safe money-market funds.
Auction-rate securities are, in effect, long-term debt instruments that were marketed as short-term debt. Their interest rates were structured to reset in auctions every seven to 35 days.
Municipalities and closed-end mutual funds issued more than $300 billion of the debt in recent years because it was a relatively cheap way to borrow.
But the reset auctions ground to a halt in February as the credit crunch intensified and demand dried up for complex securities of any sort. That left many individual investors unable to sell their auction-rate holdings.
Material from The Associated Press was used in this report.