Bank of America Corp. has agreed to a nationwide settlement in which it will buy back about $4.5 billion in troubled auction-rate securities from investors who have been unable to access their money, Massachusetts Secretary of the Commonwealth William Galvin announced today.
The settlement resolves the Massachusetts Securities Divisions investigation of Bank of Americas marketing and sales of auction rate securities.
The deal covers all illiquid securities owned by retail investors as well as securities owned by small business customers with up to $10 million on deposit and charitable organizations with up to $25 million on deposit.
Bank of America, which neither admitted nor denied wrongdoing, said the offer will cover about $4.5 billion in securities held by 5,500 of its customers. The Charlotte bank said it has informed the Securities and Exchange Commission and the New York attorney generals office of the agreement and continues to cooperate with their investigations.
The SEC said it expects to soon announce a preliminary settlement with the bank.
Bank of America said it expects to take a pretax charge of about $275 million in connection with the purchase of the securities from retail clients. This mostly stems from the difference between the purchase price and the estimated value of the securities. The bank said the capital impact of bringing the assets onto its balance sheet is expected to be minimal.
The banking giant is one of many financial institutions to come under scrutiny for the sale of a type of bond with resetting interest rates. The market for auction-rate securities froze in February amid the credit crunch, leaving individual and institutional investors unable to access their money.
At issue is how the bonds were pitched to customers. Regulators say banks did not accurately represent the risks to investors, wrongly leading them to believe the bonds were as liquid as cash.
Last month, Charlotte-based Wachovia Corp. agreed to buy back up to $8.8 billion in auction-rate securities to settle an investigation involving the Missouri secretary of state, Cuomo and the Securities and Exchange Commission. Wachovia, which neither admitted nor denied wrongdoing, also agreed to pay $50 million in fines and could face SEC penalties depending on the success of the buyback program.