Bank of America Corp. said Wednesday it will buy back about $4.5 billion worth of auction-rate securities held by roughly 5,500 U.S. customers as part of a settlement agreement with Massachusetts regulators.
The 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 market for the securities collapsed in February.
The Charlotte, North Carolina-based bank said it continues to cooperate fully with ongoing investigations by the Securities and Exchange Commission and the New York Attorney General's Office.
"The SEC Division of Enforcement expects to soon announce the terms of a preliminary settlement with Bank of America that results from our ongoing auction-rate securities investigations," Linda Thomsen, director of the SEC's enforcement division, said in a statement.
Bank of America joins eight other big investment banks that have agreed to buy back a total of more than $50 billion of the securities.
In afternoon trading, shares fell 74 cents, or 2.3 percent, to $31.78.
Under the agreement with Massachusetts regulators, Bank of America will buy back securities at the value at which customers purchased them. The offer applies to individual investors and trusts benefiting individuals who purchased auction-rate securities before Feb. 11, as well as businesses with account values up to $10 million and charities with account values up to $25 million.
The repurchase program will begin Oct. 1 and remain open through the end of the year.
"We fully recognize the effect that the unprecedented market conditions have had on our clients, and we appreciate their patience as we worked with the regulators to reach an agreement that would provide liquidity relief to the investors," said Jerry Dubrowski, a spokesman for Bank of America.
Massachusetts Secretary of State William Galvin said the agreement focuses on smaller investors who have been unable to get access to their money for months.
"It gives these people some relief," he said.
Bank of America said it expects to record a pretax charge of about $275 million in connection with the buy-back program.