UBS announces a settlement, in principle, with the New York Attorney General (NYAG), the Massachusetts Securities Division, the Securities and Exchange Commission (SEC) and other state regulatory agencies represented by North American Securities Administrators Association (NASAA) to restore liquidity to all remaining clients holdings of auction rate securities (ARS).
Under the agreement in principle, UBS has committed to purchase a total of USD 8.3 billion of ARS, at par, from most private clients during a two-year time period beginning 1 January 2009. Private clients and charities holding less than USD 1 million in household assets at UBS will be able to avail themselves of this relief beginning 31 October 2008. From mid-September, UBS will provide loans at no cost to the client for the par value of their ARS holdings.
In addition, UBS has also committed to provide liquidity solutions to institutional investors and will agree from June 2010 to purchase all or any of the remaining USD 10.3.billion, at par, from its institutional clients. This news is in addition to the firms recently announced intention to repurchase USD 3.5 billion of tax-exempt Auction Preferred Stock.
“Todays solution provides further relief, beginning in September, to investors who have been understandably frustrated by the industry-wide failure of the ARS market,” says Marten Hoekstra, head of UBS Wealth Management Americas. “Our leading position in supporting the market and providing liquidity is clear, and now, we are the first firm to give all clients – private, corporate and institutional the opportunity to be made whole”
“Since the breakdown in the market, UBS clients have been offered multiple liquidity options. They have been able to borrow 100 percent against the value of their holdings,” says Hoekstra. “The solutions announced today provide our clients with the widest range of choices in the industry, including a two-year window during which clients can either continue to earn interest or redeem their ARS at any time.”
The firm has also agreed to pay a fine of USD 150 million USD 75 million to the state of New York and USD 75 million to other state regulatory agencies. UBS neither admits nor denies allegations of wrongdoing.
The full cost of the proposed settlement, taking into account the projected redemption patterns of clients, the difference between the purchase prices and the current market value of client ARS holdings, and the regulatory fine related to the settlements, is estimated to be in the range of USD 900 million on a pre-tax basis, to be booked in the second quarter results. This includes reimbursements to all clients for losses incurred from sales of ARS holdings between 13 February and 8 August 2008.
A provision for the costs of this settlement will be included in the firms second quarter financial results, which will be announced on 12 August 2008.
Results, including this settlement, for UBS AG for the second quarter will be consistent with guidance given by the firm on 4 July 2008.