Merrill Lynch & Co., Inc. (NYSE: MER) announced that it would follow Citigroup, Inc. (NYSE: C) in redeeming its Auction Rate Securities (ARS). Unlike Citi -- which plans to redeem $7 billion worth of ARS by November -- Merrill will take its sweet time. According to MarketWatch, from January 15, 2009, and through January 15, 2010, Merrill will "offer to buy at par" $10 billion worth of ARS it sold to 30,000 retail clients.
This is good news and it should get the ball rolling. But there are still at least $300 billion ARS which are not yet redeemed. The list of issuers reads like a who's who of the banking world. For instance, the Wall Street Journal reports that the top 10 municipal ARS issuers at the end of 2007 were as follows:
- Citigroup ($6.7 B)
- Morgan Stanley (NYSE: MS) ($5.2 B)
- JPMorgan Chase (NYSE: JPM) ($5.2 B)
- Goldman Sachs (NYSE: GS) ($4.3 B)
- UBS AG (NYSE: UBS) ($4.2 B)
- Merrill Lynch ($4.1 B)
- Bank of America (NYSE: BAC) ($3.7 B)
- RBC Capital Markets ($1.2 B)
- Lehman Brothers (NYSE: LEH) ($1.1 B)
- Wachovia (NYSE: WB) ($0.6 B)
When the ARS auctions first failed in February -- 5,632 comments from those frozen in ARS hell since then reflect the frustration and effort that have gone into trying to get their money back -- I thought there would be a wider American uproar. But it's taken almost six months for the dam of frustration to build into action. And most of the credit for these redemption announcements goes to Massachusetts and New York regulators. It's not clear why the Federal government stayed away from this catastrophe.
And there's still much more to go. I think Citi and Merrill took action because their new CEOs can legitimately claim that they inherited the problems of a previous CEO. And they want to separate themselves from the sins of their predecessors. I hope that the rest of the industry will follow the example of these two.
The problem of rebuilding investor trust is a tougher nut to crack. After the treatment investors have received from their brokers since February, I would expect people to pull their money out of the hands of commissioned brokers. Why would you pay someone to get that kind of treatment?
Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter
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Reader Comments (Page 1 of 1)
8-07-2008 @ 8:16PM
KEN said...
OOOOOOH GRAB YOUR CASH ITS A GONNA CRASHDO DA DO DA BROKER S STEALIN ALL YOUR CASH DO DA DO DA DAYSTEALIN IT TODAY STEALIN IT TONIGHTGRAB YOUR CASH IT A GONNA CRASH DO DA DO DA DAY$$$$$$$$$$$$$$$ HEY EVERYBODY SING $$$$$$$$$$$$$$$$$$$$$ BACK TO TOP HA HA HA HA HA HA HA HA HA HA HA HA HA HA HA HA HA HA HA HA HA HA
8-07-2008 @ 8:27PM
Ed said...
Grab your cash???? what the heck are you on about?
http://www.coolpersonalchecks.com
8-07-2008 @ 8:28PM
ZDaytonawatchlvr said...
The Wall Street Wizzards will become the Wall Street Wizzers as this market turns to a giant
downward spiral. The crap they have been feeding us for years is downright bull-crap. You can't belive the number they give us, and they want to provide us with a wonderful service in the form of wrap around accounts at the rate of 1% of asset value regardless of their performance. It is astounding to me. Since I am a real estate broker it would be the equivalent of saying to a client: I sold you that house for 500K, you send me a check for 5K per year, and when you get ready to sell, regardless if it is for more or less money, I will be happy to assist you. I gotta give Wall Street credit, they have a way of making people part with their money with no value added then most any other business. Can you imagine if Bush had is way and made Social Security part of this scam!!
8-08-2008 @ 7:13AM
alan said...
CNBC reporting on their ticker that Boston Globe reports UBS has settled and will redeem 19.4 billion of its auction rates. Hopefully that will cover all the retail holdings. The dominoes are starting to fall one by one.
8-08-2008 @ 3:01PM
Martin said...
The problem with these "settlements" is two-fold.
One the are not buying them now, they are (in the example above for Merrill, buying them at par starting in Jan 09 all the way to jan 10. What good does that do? PEople are still stuck in them, lots can change before now and then as well. ALso the issues that once felt on the hot seat to redeem might slow down the redemptions now.
People cannot get their money, there is additional risk that the firms themselves might not survive. I think they just all bought themselves more time. I think the redemptions should start immediately.
Marty