Handed their ARSes

7 August 2008 By Antony Currie Follow @AntonyMCurrie

Its woes from SIVs to monolines had already undermined investors trust in track records. Now regulators browbeating of Citi over auctionrate securities means Wall Street will find it harder to use good past performance as a defence when markets hit the skids.

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In agreements with New York attorney general Andrew Cuomo and with the SEC, Citigroup has agreed to repurchase auctionrate securities it sold to individuals, charities and small businesses.

Citi is buying the securities back at par, and on current market prices expects the total face amount to be worth $7.3bn. The bank will also make whole any of those investors who sold their securities at a loss, and will reimburse fees to any New York state municipal issuers that had to refinance auctionrate securities after February 11th that were initially issued between August last year and February.

Cuomo's office had threatened to sue Citigroup for fraud in marketing and selling the securities. Citi had, alleged Cuomo, described the securities as safe, liquid and as good as cash, and had not told investors that it was supporting the auctions between August last year and February this year.

Citi has denied any wrongdoing, and is paying a $50m fine to both the state of New York and to other regulatory agencies.

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