NEW YORK AND LOS ANGELES — More than two years after he put the bulk of his savings into a supposedly secure investment account at Wells Fargo & Co., Gus White will finally get his money back.
Wells Fargo said Wednesday that it had agreed to buy back about $1.4 billion in adjustable-rate bonds that had been frozen since the credit crisis struck early last year, including $700 million held by California residents.
Before the crisis, small investors around the country bought billions of dollars of so-called auction-rate securities that Wells Fargo and other financial firms had allegedly marketed as safe and as liquid as savings accounts and money market funds.
But the investors were left stranded when the global credit markets convulsed in the wake of the subprime-mortgage meltdown in February 2008. Those who could sell had to do so at steep discounts.
Investors who held on weren't sure when or whether they'd get all their money back.
"I was scared to death for quite a while," said White, 60, of Newport Beach. "It was very stressful."
In agreements with California and other states, Wells Fargo agreed to repurchase the securities at face value and to reimburse customers who sold at a loss.
Auction-rate securities were issued by municipalities and closed-end mutual funds with interest rates that were reset at regular auctions -- sometimes as often as once a week.
More than $330 billion of the securities were sold in recent years to investors attracted to their yields, which could be a percentage point or more above that of a typical money market fund.
Buyers of the paper typically said they were told they could sell it at any auction for the amount they paid. But the auctions ground to a halt when no one wanted to buy the securities as the credit crunch took hold. Banks and investment firms, saying they also had been blindsided by the credit crunch, initially refused to buy back the securities.
The auction-rate market returned slowly and some investors were able to redeem their holdings. Wells Fargo said Wednesday that it had worked with issuers of the securities to help customers get their money back.
But "redemptions by issuers have not occurred as fast as anyone would have hoped or predicted," Charles W. Daggs, chief executive of Wells Fargo's retail brokerage, said in a statement. "We are glad to have resolved this for our customers."
