Citi to buy back $7 billion in bonds

Bob Moon Aug 7, 2008

Citi to buy back $7 billion in bonds

Bob Moon Aug 7, 2008


Kai Ryssdal: I’m going to have to ask you to pay extra special attention today as we start out on the topic of illiquid auction-rate securities.

Trust me when I say we’re doing you a favor by sparing you the exact definition of what they are, but the market for ’em froze up almost without notice earlier this year. When it did, tens of thousands of investors got burned, giant corporations and small businesses along with retirees and plain old folk hoping to make a decent return on their money.

Today, the country’s biggest bank and the biggest purveyor of auction-rate securities agreed to make good on $7 billion worth of those seemingly worthless bonds.

Our senior business correspondent Bob Moon has the details.

Bob Moon: Citigroup is the first bank to reach a major settlement with federal and state authorities. They’ve accused several banks of fraudulently misleading investors about the risk they were buying into.

Citi has agreed to buy back frozen bonds at their full face value from retail customers, charities and small or mid-sized businesses within the next three months.

New York Attorney General Andrew Cuomo announced the settlement today.

Andrew Cuomo: This resolution will make a big difference for a lot of people. Over 40,000 people nationwide — 40,000 — will have securities redeemed. The total value of the securities is about $7 billion.

The deal doesn’t cover other banks currently being investigated and/or facing lawsuits in several states.

In Frederick, Maryland, investor John Dickerson prefers not to say how much money his family still has tied up in accounts sold by Merrill Lynch. He says they were told that the cash would be available whenever it was needed.

John Dickerson: It was just absolutely pushed as, “This is just the easiest, safest, greatest way to make a little extra on your money,” and that there would be no problem getting in or out at any time.

That was supposed to be possible because frequent auctions are held to trade them on the open market. Dickerson says the problem is credit worries seized up the market soon after the start of the year and there still aren’t any bidders.

Dickerson: We go to auction every Tuesday and Thursday, and every Tuesday and Thursday, the auctions fail.

Dickerson is hopeful today’s settlement will put pressure of Citigroup’s rivals to do what Andrew Cuomo calls “the right thing.”

Cuomo: The people are getting their money back and that’s what it’s all about.

But this $7 billion settlement is just part of an auction-rate securities market worth $330 billion before it melted down in February.

I’m Bob Moon for Marketplace.

Ryssdal: Bob mentioned the Citigroup settlement’s only part of a huge auction rate market, which means there’s plenty of blame to go around.

Bank of America announced this afternoon that it’s on the receiving end of state and federal subpoenas about its auction rate dealings, too.

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