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2 Banks Agree To Buy Back Securities

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The Associated Press

Published: August 15, 2008

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

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

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

"We are doing an industrywide investigation," Cuomo said at a news conference, adding that his office continues to discuss settlements with other banks that sold the securities.

The $330 billion auction-rate securities market involved investors buying and selling instruments that resembled corporate debt, except the interest rates were reset at regular auctions, some as frequently as once a week.

The bondlike investments were widely held by many institutional and individual investors and were seen as highly liquid, money market-like investments. However, the market for them collapsed in February amid the downturn in the broader credit markets.

Regulators have been investigating the crash to determine who was responsible and whether banks knowingly misrepresented the safety of the securities when selling them to investors.

JPMorgan will repurchase all securities it sold to retail customers, charities and small to midsized businesses by Nov. 12. JPMorgan will also buy back any securities sold by Bear Stearns, which it acquired earlier in the year.
Morgan Stanley will repurchase the securities from similar groups by Dec. 11.

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