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UBS to buy back stressed securities

Latest update : 2008-08-09

According to a deal with US authorities, Swiss bank UBS will buy back 19 billion dollars worth of securities that it first sold to investors. The agreement is the result of the financial crisis, as the market for auction rate securities implodes.

Swiss banking giant UBS has agreed to buy back 19.4 billion dollars' worth of stressed securities it marketed to investors under a deal with regulators in the US state of Massachusetts, an official said Friday.

The settlement was announced after Massachusetts regulators had charged UBS in late June with securities fraud in relation to its role in marketing so-called auction rate securities.

"There has been an agreement. UBS will pay 19.4 billion dollars to buy back these securities," said a spokesperson for William Galvin, the Massachusetts secretary of the commonwealth.

The official said that the Swiss bank had also agreed to pay civil fines totaling 150 million dollars as part of the broad agreement.

The state deal with UBS comes a day after US banking behemoth Citigroup agreed to buy back 7.5 billion dollars' worth of auction rate securities it marketed to tens of thousands of investors in a settlement with federal and state regulators.

Hours after the Citigroup announcement Thursday, Wall Street investment bank Merrill Lynch said it would buy back 12 billion dollars' worth of the tainted securities.

Auction rate securities, essentially debt instruments issued by financial firms, municipalities and student loan companies, typically have a fairly lengthy maturity. But the interest rates on such securities can be volatile and change at weekly and monthly auctions run by banks.

The instruments provided a lucrative business for many banks in recent years, but the market for auction rate securities imploded in February as a sweeping credit squeeze -- which began in the US housing and mortgage markets -- worsened.

The market's collapse left many investors scrambling to redeem their holdings and nursing paper losses.

Regulators have been investigating how banks and brokerages marketed the securities to investors.

UBS had also been sued by New York authorities in relation to its marketing of the securities.

The Swiss bank has been hit hard heavy losses tied to US mortgage securities which have slumped amid a lengthy housing downturn, and has written down over 37 billion dollars in assets since a credit crunch began sweeping US and global markets last August.

Date created : 2008-08-09