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2 big banks settle probe

JPMorgan, Morgan Stanley will buy back auction-rate securities.

August 15, 2008|From the Associated Press

NEW YORK — JPMorgan Chase & Co. and Morgan Stanley on Thursday became the latest banks to reach settlements with New York Atty. Gen. Andrew Cuomo and other regulators as part of an investigation into the collapse of the auction-rate securities market.

The two banks will repurchase a combined $7 billion of the troubled securities from investors at face value. Morgan Stanley agreed to pay a fine of $35 million and JPMorgan will pay $25 million.

JPMorgan and Morgan Stanley are the third and fourth to reach settlements, following deals by UBS and Citigroup Inc. last week. Regulators continue to investigate other banks as well.

In addition, Wachovia Corp. was in a final round of talks with Cuomo, according to a person close to the situation who requested anonymity because the agreement had not yet been finalized. The Charlotte, N.C.-based bank was close to agreeing that it will buy back $8 billion of auction-rate securities by the end of the year, the person said.

"We are doing an industrywide investigation," Cuomo said, adding that his office continued to discuss settlements with other banks that sold the securities. Cuomo's office, the Securities and Exchange Commission and other state regulators reached settlements that required Swiss bank UBS to repurchase $18.6 billion of the securities, while Citigroup agreed to buy back $7 billion of the securities. UBS will also pay a fine of $150 million, while Citigroup will pay a $100-million fine.

The $330-billion auction-rate securities market involved investors buying and selling instruments that resembled corporate debt, but the interest rates were reset at regular auctions, some as frequently as once a week. Many companies and retail clients invested in the securities because they could treat their holdings almost like cash.

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