UBS makes it official: $19b buyback deal unveiled

UBS Financial Services Inc. said today it would buy back about $19 billion in auction-rate securities from its customers, under a settlement with the New York attorney general, the Massachusetts Securities Division, other state agencies and the Securities and Exchange Commission.

Under the agreement, reported in today's Globe, the Swiss Bank would reimburse clients with less than $1 million in the investments starting Oct. 31. Clients with more than $1 million in the securities will be able to sell them back to UBS over a two-year period starting Jan. 1, 2009. The settlement comes on top of $3.5 billion in investments that UBS previously has offered to buy back, for a total of more than $22 billion it will help customers exit.

UBS said those customers hold a total of $8.3 billion in auction-rate securities. The firm said it will buy back up to an additional $10.3 billion of the investments from corporate and other institutional clients -- but some could have to wait until June 2010. UBS said it would make no-cost loans to customers starting in September.

The company also will pay $150 million in fines; $75 million of which will go to New York. Massachusetts and other state agencies will split the rest.

The full cost of the proposed settlement is estimated to be about $900 million on a pre-tax basis, to be booked in the second quarter results. That includes reimbursements to all clients for losses incurred from sales of auction-rate securities between Feb. 13 and Aug. 8, 2008.

The auction-rate securities market froze in February, amid wider problems in the credit markets and as Wall Street firms that had handled the trading of the investments stopped doing so. As a result, individual and large investors have more than $200 billion trapped in the investments across the country, an ordeal that has spurred a nationwide regulatory probe of the industry.

This settlement is in response to fraud charges brought against UBS by Massachusetts and New York regulators. Massachusetts Secretary of State William F. Galvin, who oversees the Securities Division, had alleged that UBS executives knew the auction-rate market was collapsing and yet did not tell its brokers and did not warn individual investors. UBS executives also were dumping the investments, even as they continued to push them on customers, according to complaints filed by Galvin's office and by the New York attorney general, Andrew Cuomo.

“Today’s solution provides further relief, beginning in September, to investors who have been understandably frustrated by the industry-wide failure" of the auction-rate market, said Marten Hoekstra, head of UBS Wealth Management Americas.

Cuomo, in a press conference today, said, "I'm heartened by the fact i think the industry finally gets it." He added, "This is an intolerable situation."
(By Beth Healy, Globe staff)