Under the deal, Merrill Lynch will buy back ARS at par from small individual and business investors (those with accounts of less than $4 million) by the end of September. Individuals, charities and businesses up to $100 million will have their ARS holdings redeemed by January 2 next year. In the interim, the bank will supply no-cost loans to bridge the gap. The bank accelerated an earlier buyback deal agreed earlier this month.
But the bank did not commit to redeeming larger investors, saying only that it "will use its best efforts to provide liquidity to its ARS institutional customers and business customers with accounts of more than $100 million by the end of 2009".
The bank will also pay a $125 million fine, and has agreed to arbitration over claims by investors who lost money as a result of the drop in ARS liquidity in February this year. The Securities and Exchange Commission warned Merrill Lynch faced a further penalty fine, depending on "the extent of Merrill Lynch's misconduct in marketing and selling ARS".
Goldman Sachs, meanwhile, agreed to buy back roughly $1 billion in ARS sold to smaller clients (accounts of under $10 million) by November 12, but made no commitment to larger clients, saying it would "endeavour to continue to work with issuers and other interested parties, including regulatory and government entities, to expeditiously provide liquidity solutions for institutional investors". Goldman Sachs will also pay a fine of $22.5 million.
Deutsche Bank will complete buybacks within 90 days for its retail customers, but also made no commitment on institutional ARS holders; its fine was set at $15 million.
See also: UBS commits to $18.6 billion ARS buyback
Merrill and Citi to repurchase ARS after New York applies pressure
New York sues UBS for alleged auction rate securities fraud
Investors caught short by auction rate meltdown