Bank of America Corp. has agreed to buy back as much as $4.7 billion in auction-rate securities to settle charges that it misled thousands of customers about the risky investments, federal and New York state regulators said Wednesday.
The regulators also announced similar settlements with RBC Capital Markets Corp., which agreed to buy back about $850 million worth of auction-rate securities from roughly 2,200 investors.
The Securities and Exchange Commission and New York Attorney General Andrew Cuomo announced the settlements with Bank of America Corp., which joins nine other big investment banks that have agreed to buy back a total of more than $50 billion of the securities.
Bank of America also agreed to "use its best efforts" to provide as much as $5 billion in liquidity to other businesses that bought them. The bank is paying a $50 million civil penalty. It neither admitted or denied wrongdoing under the settlements.
The SEC's settlements with Bank of America and RBC are preliminary, subject to review and approval by the agency's commissioners.
The agreement with Bank of America had been expected. In a statement, the Charlotte, North Carolina-based bank said it "continues to cooperate fully with the SEC's ongoing investigation."
The bank said its settlement offer "will provide liquidity to individual investors, and certain businesses and charitable organizations that have been affected by unprecedented conditions in the global credit markets."
RBC Capital Markets, the investment banking arm of Royal Bank of Canada, also neither admitted or denied wrongdoing. It said the buyback would cut into its fourth-quarter earnings by about $30 million on a pretax basis. That estimated loss includes the $9.8 million civil penalty the company agreed to pay to Cuomo's office and the North American Securities Administrators Association.
The SEC, Cuomo's office and other state regulators have been conducting a wide-ranging investigation into banks' marketing of auction-rate securities. The regulators have alleged that the banks misled customers into believing the auction-rate securities were safe, cash-like investments.
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. A number of companies invested in the securities because they could treat their holdings almost like cash.
Tens of thousands of investors nationwide — including institutional and individual investors, cities and towns, charities and small businesses — were left holding damaged, illiquid securities when the $330 billion market for auction-rate securities collapsed in mid-February, regulators say.
Settlements calling for buybacks of auction-rate securities already have been reached with Citigroup Inc., UBS, Morgan Stanley, JPMorgan Chase & Co., Wachovia Corp., Merrill Lynch & Co., Goldman Sachs Group Inc., Deutsche Bank and Credit Suisse Group, as well as with Fidelity Investments.
In an earlier accord with Massachusetts Secretary of State William Galvin, Bank of America agreed to redeem $43 million in auction-rate securities held by the Massachusetts Turnpike Authority and one of the state's housing agencies.
Shares of Bank of America fell 56 cents to $23.21 in Wednesday afternoon trading, while Royal Bank of Canada dipped $1.28 to $39.36 after earlier hitting a 52-week low of $37.01.