US investment banks pay securities fines

Merrill Lynch, Goldman Sachs and Deutsche Bank have all brokered deals with Wall Street regulators over auction rate securities (ARS).

In February this year, the ARS market collapsed leaving customers holding billions of dollars of illiquid assets, and the New York State Attorney General, backed by federal authorities, has been attempting to rectify the situation.

Under the deal the bank will pay fines – with Merrill Lynch paying £125 million (£66 million) - along with being forced to buy back the securities.

Merrill Lynch is to buy back some $12 billion in ARS, while Goldman Sachs was issued a $22.5 million fine and will buy back $1.5 billion in securities.

Deutsche Bank will repurchase $1 billion of securities along with a $15 million fine.

John A Thain, Merrill Lynch chairman and chief executive officer, said: "Our clients have been caught in an unprecedented liquidity crisis.

"We are solving it by giving them the option of selling their positions to us."

New York Attorney General Andrew Cuomo said: “Returning billions of dollars back to investors not only protects their interests but also increases confidence in the entire market.

“[These] multi-billion dollar agreements are the latest victories for investors seeking relief from the collapse of the auction rate securities market, which has left a stranglehold on billions of dollars.

“The industry is taking responsibility for correcting a problem they helped create, and that’s a good thing. The fundamental goal has been to return money into the hands of investors, and that’s what these deals do."

ARS act as a long-term debt issue, but where interest rates on the debt are flexible, sold via a Dutch auction.