Archive for the “Wachovia” Category

Bank of America apparently is getting ready to join Citigroup, UBS, JPMorgan and other banks that agreed to cut deals with state and federal regulators and resolve investigations into the alleged mishandling of auction rate securities sales.

On Sept. 3, Massachusetts Secretary of State William Galvin said Bank of America, the nation’s second-largest bank, must either reach an agreement with state regulators or be prepared to face legal action. On Sept. 4, New York Attorney General Andrew Cuomo followed up on Galvin’s edict, serving subpoenas to eight Bank of America executives as part of his six-month investigation on how Wall Street’s biggest banks sold auction rate securities to investors.

So far, eight Wall Street heavyweights - UBS, Morgan Stanley, Citigroup, JPMorgan Chase, Wachovia, Merrill Lynch, Goldman Sachs and Deutsche Bank - have agreed to settle claims that they marketed auction rate securities as cash-like alternatives to investors. In addition to buying back nearly $50 billion of the securities from retail investors, the banks also must pay fines totaling more than $500 million to state and federal regulators.

However, the New York attorney general says any settlements agreed to thus far do not cover any possible misconduct by individual brokers.

Meanwhile, two former Credit Suisse Group AG brokers were formally charged with violating securities laws and fraudulently selling subprime mortgages connected to auction rate securities to corporate clients.

As reported Sept. 5 on Bloomberg.com, Julian Tzolov and Eric Butler were charged on Sept. 3 for falsely representing various securities to investors as backed by federally guaranteed student loans and safe alternatives to cash or money market funds.

Our affiliation of securities lawyers is actively involved in advising individual and institutional investors in evaluating their legal options when confronted with subprime and other mortgage-related investment losses.

The nation’s fourth-largest bank has hired Tom McManus, a former chief investment strategist at Banc of America Securities, to head its securities division.

Interestingly, the securities unit of Wachovia Corp. is the subject of speculation by analysts who say it could be on the selling block in the future. With Wachovia’s stock trading at historic lows, along with an $8.9 billion quarterly loss in July - and another $9 billion in mortgage losses expected over the next 18 months - the bank needs to preserve capital and its brokerage arm could be seen as a liability.

Meanwhile, 51-year-old McManus, who is a well-known stock forecaster, will lead Wachovia Securities’ advisory services group, which establishes investment policy and strategies to support the firm’s financial advisers.

Our affiliation of securities lawyers is actively involved in advising individual and institutional investors in evaluating their legal options when confronted with subprime and other mortgage-related investment losses.

The nation’s fourth-largest bank has hired Tom McManus, a former chief investment strategist at Banc of America Securities, to head its securities division.

Interestingly, the securities unit of Wachovia Corp. is the subject of speculation by analysts who say it could be on the selling block in the future. With Wachovia’s stock trading at historic lows, along with an $8.9 billion quarterly loss in July - and another $9 billion in mortgage losses expected over the next 18 months - the bank needs to preserve capital and its brokerage arm could be seen as a liability.

Meanwhile, 51-year-old McManus, who is a well-known stock forecaster, will lead Wachovia Securities’ advisory services group, which establishes investment policy and strategies to support the firm’s financial advisers.

Our affiliation of securities lawyers is actively involved in advising individual and institutional investors in evaluating their legal options when confronted with subprime and other mortgage-related investment losses.

“Nobody gets a pass.” That’s apparently the verdict from Christopher Cox, chairman of the Securities and Exchange Commission (SEC), who says investigations into the collapse of the auction rate securities market will indeed extend beyond major Wall Street investment banks to include secondary dealers who sold the securities.

Cox’s clarification follows recent criticism by smaller brokerages like Fidelity Investments and Oppenheimer & Co., which contend they should not be obligated to buy back billions of dollars of auction rate securities from investors based on the fact they didn’t underwrite the securities nor run the auctions for the securities. The big investment banks did.

Moreover, the brokerages say that when it came to knowing about potential problems brewing in the auction rate market, they were kept in the dark right along with investors.

The finger pointing over who’s at fault over auction rate securities has gained momentum in the past week after several of Wall Street’s biggest players - including UBS, Citigroup, JP Morgan Chase and Wachovia - agreed to settle claims of auction rate fraud with New York Attorney General Andrew Cuomo and buy back more than $42 billion of auction rate securities from their customers. Now, smaller brokerages say even though some of Wall Street’s larger investment banks are agreeing to Cuomo’s terms, it doesn’t mean they need to follow suit.

As reported Aug. 19 in the Wall Street Journal, secondary dealers of auction rate securities like Fidelity and Oppenheimer believe regulators should put the onus of blame for the auction market’s demise - as well as any agreements to buy back auction rate securities from investors - solely on the underwriters of the securities and the controllers of the auctions: Wall Street investment banks.

“None of the rest of the market knew about how auction dealers allegedly controlled the whole auction process for 25 years,” said Michael Decker, chief executive of the association that represents regional brokerages, in the Wall Street Journal article.

Whether regional brokers had prior knowledge about the inner workings of the auction rate process may be irrelevant. At the heart of the state and federal investigations regarding auction rate securities is the issue of whether the securities were presented and sold to investors as “safe” and “liquid” when, in fact, they were not. In many cases, investors contend brokers sold them the instruments as cash alternatives - investments they could cash out of at will.

It was only when the auction market collapsed in February - and their auction securities became illiquid - that investors learned their “cash alternative” investments strayed far from the promises of brokers.

Moving forward, the issue of culpability for smaller brokerage houses will be contingent on what regulators uncover in their investigations. Period. Interestingly, several of the brokerages mentioned in the Aug. 19 Wall Street Journal story, including Oppenheimer, E-Trade Financial Corp. and Fidelity Investments, have refused to specify the dollar amount in auction rate securities their clients hold.

Our affiliation of securities lawyers is actively involved in advising individual and institutional investors in evaluating their legal options when confronted with subprime and other mortgage-related investment losses.

Just when you thought the auction rate securities ordeal might be nearing an end - and investors who’d been pitched the instruments by Wall Street as cash alternatives finally would receive their money back - think again.

In the past two weeks, New York Attorney General Andrew Cuomo has succeeded in getting several major Wall Street players - Citigroup, UBS, JP Morgan Chase, Morgan Stanley and Wachovia, among them - to pony up billions of dollars to buy back the auction rate securities they sold to investors. The catch is in the fine print of the agreements orchestrated by Cuomo: The Wall Street firms only have to pay back the auction rate bonds they sold, not the billions more they actually underwrote.

That small detail could have big repercussions for millions of investors holding illiquid auction rate securities bought through mutual fund firms or individual brokers. As reported Aug. 18 on CNBC.com, a number of regional firms and discount brokerage houses say the blame for the auction rate securities scandal rests firmly with the major underwriters of the securities - Wall Street powerhouse firms that decided to no longer support the auction rate market and dropped out entirely in February.

According to the CNBC article, the Regional Bond Dealers Association, a brokerage trade association, has written a letter to Cuomo and the Securities and Exchange Commission (SEC) in which it claims the real auction rate fraud was conducted by the underwriters of auction rate securities. The Wall Street firms dominated the auction rate market, the letter says, and sold the auction bonds to regional firms and discount brokerages with the promise to hold auctions. The brokers who sold the securities to customers contend they acted in good faith and relied on information about liquidity risks from those underwriters.

And that’s where problems arise. Many regional firms and brokers do not have the financial prowess of major Wall Street banks. Forcing them to buy back auction rate securities from investors at par value could financially bury many of them. The Regional Bond Dealers Association, in its letter to the SEC, said that the only practical solution for making investors whole is to include ARS customers of distributing firms in the settlements with large lead managers.

For his part, Cuomo reportedly stated in an Aug. 16 interview with CNBC that he has no plans to become involved in what could be a he said/she said dispute between brokers and the big Wall Street firms over who is culpable for misleading investors.

“I represent the investor,” he said, “and that’s why I’m treating this as a sales practice issue.” That’s all well and good. But until the fine print in the settlement agreements involving auction rate securities is worked out, thousands of ARS investors are no better off today than they were six months ago.

Our affiliation of securities lawyers is actively involved in advising individual and institutional investors in evaluating their legal options when confronted with subprime and other mortgage-related investment losses.

When several major Wall Street investment firms - including Citigroup, UBS, Wachovia and JP Morgan Chase - agreed to settle claims of auction rate securities fraud by state and federal regulators, many investors thought their financial problems finally were solved.

As it turns out, that may not be the case. According to an Aug. 18 story on Bloomberg.com, the recent deals that New York Attorney General Andrew Cuomo struck with some Wall Street institutions to buy back billions of dollars of action rate securities they sold directly to individuals do not include investors who hold auction rate debt purchased through mutual fund firms or brokers that didn’t actually underwrite the securities.

And that leaves a lot of unanswered questions. These investors hold some $160 billion of auction rate securities.

“This is a glaring oversight,” said Jonathan Kahn in the Bloomberg article. Kahn is an investor who holds auction rate debt underwritten by Goldman Sachs Group Inc. and purchased through a different brokerage.Investors like Kahn have been in a holding pattern over their auction rate investments since February, when the market for auction rate securities seized up as Wall Street investment banks abruptly stopped offering financial support to buy the securities.

Investors, who previously had been told by their brokers that auction rate securities were cash equivalents, suddenly found themselves with illiquid investments.

Following the auction market’s collapse, several states, including New York, began looking into how Wall Street firms marketed and sold auction rate securities to investors. In August, settlements were reached with some of the biggest underwriters of the securities, with Citigroup, UBS, Morgan Stanley, JPMorgan Chase and Wachovia Corp. agreeing to buy back a combined $42 billion of auction rate securities they sold directly to individuals.

So far, about 30 companies have been subpoenaed by Cuomo’s office for their alleged mishandling of auction rate securities sales. Other states, as well as the Securities and Exchange Commission (SEC), also are involved in ongoing investigations.

Eventually, Cuomo says action against smaller brokerages will come to fruition.

But, as everyone knows, “eventually” on Wall Street could be a long time in coming. Until then, the light that so many investors thought they saw at the end of the auction rate tunnel has fallen dark once again.

Our affiliation of securities lawyers is actively involved in advising individual and institutional investors in evaluating their legal options when confronted with subprime and other mortgage-related investment losses.

When it rains, it pours. After a streak of bad luck that includes staggering losses tied to mortgage debt and massive job cuts, Wachovia Corp. could be forced to sell its asset management unit, Evergreen Investments, to raise much-needed capital.

Speculation of the Evergreen Investments sale first surfaced following an announcement that the nation’s fourth-largest bank has agreed to buy back $8.5 billion in auction rate securities as part of a fraud investigation led by Missouri Secretary of State Robin Carnahan.

Wachovia’s agreement with Carnahan, as well as New York Attorney General Andrew Cuomo and the Securities and Exchange Commission (SEC), is the latest in several recent settlements by Wall Street investment banks and securities firms as they try to put claims of auction rate abuses behind them. As part of its deal, Wachovia will pay a $50 million fine, and must buy back all illiquid auction rate securities from retail customers, charities and small businesses by Nov. 28.

In addition, Wachovia is required to make no-interest loans immediately available for any investor who needs liquidity before the auction buyouts are finalized.

In the past week-and-a-half, Citigroup, UBS, JP Morgan Chase and Morgan Stanley all have agreed to repurchase a combined total of $32.6 billion in auction rate securities and pay fines of more than $300 million.

As with a number of Wall Street investment banks, the collapse of the auction rate securities market in February created a public relations nightmare for Wachovia. In July, after being deluged with complaints from investors who said Wachovia brokers had intentionally misled them about the liquidity risks of the auction rate bonds, securities regulators from several states launched a surprise raid at the St. Louis headquarters of Wachovia Securities.

Trouble over auction rate securities sales may be minuscule, however, compared to Wachovia’s other problems. On Aug. 11, the bank was forced to revise its second-quarter loss from the prior month to $8.92 billion from $8.66 billion. It is the worst loss in the company’s history. Wachovia also plans to cut nearly 7,000 jobs, 600 more than it said three weeks ago.

Wachovia attributes much of its recent difficulties to the disastrous purchase of Golden West Financial, a California mortgage company specializing in loans that enabled borrowers to pay less than their full mortgage payment. Wachovia purchased Golden West in 2006 for $25 billion.

The acquisition of Golden West turned out to be anything but golden for Wachovia following last year’s collapse of the housing market. Wachovia’s stock is down 53 percent this year.

And now Evergreen Investments potentially could be on the selling block. Evergreen made headlines in June, when it announced plans to liquidate its Ultra Short Opportunities Fund. The fund, which had more than 70% of its assets tied to toxic subprime mortgages, lost 20% over a period of 16 days. In 2008, it was named as one of the two worst-performing ultra short bond funds of the year.

Investors in the Ultra Short Opportunities Fund say the fund’s managers purposefully kept information from them about the extent of investments made by the fund in risky mortgage-backed securities. Several investors have since filed lawsuits against Evergreen and Wachovia.

Our affiliation of securities lawyers is actively involved in advising individual and institutional investors in evaluating their legal options when confronted with subprime and other mortgage-related investment losses.

The Federal Reserve’s Primary Dealer Credit Facility (PDCF) is supposed to serve as a ‘lender of the last resort’ - intended to keep the country’s financial markets functioning properly by providing loans to securities firms at a discount.

Now the Fed’s facility could be tapped for an entirely different purpose: lending money to investment banks that are buying back illiquid auction rate securities (ARS) from investors.

According to an Aug. 11 article on Bloomberg.com, some analysts predict that Wall Street banks will turn to the Fed and its discount interest rates to finance the billions of dollars in auction securities they’ve agreed to repurchase, even using some of the ARS paper as collateral. Ultimately, banks might borrow upwards of $100 billion from the Federal Reserve, according to the article.

Last week, Citigroup and UBS became the first two firms to pony up approximately $30 billion to buy back auction rate securities from investors, as well as pay $250 million in fines. Merrill Lynch voluntarily announced its own auction rate plans shortly thereafter, agreeing to purchase $10 billion of the securities.

For the past five months, New York Attorney General Andrew Cuomo has led a nationwide investigation into the February collapse of the auction rate securities market, targeting Wall Street firms that allegedly deceived investors about ARS liquidity risks.

On Aug. 11, Cuomo turned up the heat on his investigation by strongly encouraging three major underwriters of auction rate securities - JPMorgan Chase, Morgan Stanley and Wachovia Corp - to take immediate actions to resolve investigations into their auction rate securities sales. Later that same day, Morgan Stanley agreed to repurchase some $4.5 billion of auction rate securities from investors. The offer, however, was disregarded by Cuomo, who called it “too little, too late.”

Reportedly, Cuomo, along with multiple state regulators and the Securities and Exchange Commission (SEC) are close to reaching a settlement with a number of other banks.

Our affiliation of securities lawyers is actively involved in advising individual and institutional investors in evaluating their legal options when confronted with subprime and other mortgage-related investment losses.Â

Morgan Stanley is now the latest Wall Street firm to try and cut a deal in the auction rate securities investigation. Late Monday evening, the nation’s second-biggest U.S. securities firm offered to buy back up to $4.5 billion worth of the securities from retail investors, reaching its decision only hours after New York Attorney General Andrew Cuomo sent a letter to Morgan Stanley, Wachovia and JP Morgan Chase that demanded the firms begin negotiations over their sales of auction rate securities.

As part of its offer, beginning Sept. 30 Morgan Stanley would repurchase auction rate securities for up to 30 days from individuals, charities and businesses. It also would make whole those investors who bought the securities before Feb. 12 and then were forced to sell them for a loss.

However, a spokesman for Cuomo said in a statement that the Morgan Stanley’s offer came “too little, too late,” and that the New York attorney general would continue his investigation, according to an Aug. 11 article in the New York Times.

As of last week, settlements had been reached between Cuomo’s office and Citigroup, UBS, and Merrill Lynch. On Aug. 7, Citigroup agreed to repurchase about $7.3 billion of the securities and pay a fine of $100 million. UBS is paying a $150 million fine and buying back $18.6 billion. Merrill Lynch announced its own auction rate buy back program on Aug. 8, saying it will repurchase some $10 billion in the securities.

Separately, on Aug. 8, Morgan Stanley agreed to pay $1.5 million to reimburse two Massachusetts cities, New Bedford and Hopkinton, for their auction rate securities investments.

Our affiliation of securities lawyers is actively involved in advising individual and institutional investors in evaluating their legal options when confronted with subprime and other mortgage-related investment losses.Â

After months of financial and personnel setbacks, including state and federal investigations over auction rate securities sales, dismal earnings and the ouster of CEO Ken Thompson, Wachovia Corp. has another issue to weather. As of the close of business on Aug. 7, the North Carolina-based bank officially stopped accepting applications for private, undergraduate student loans.

Private student loans are considered more profitable for banks over federal student loans based on the higher interest rates they carry. At the same time, private loans have greater risks, because there is no guarantee by the government.

Wachovia says it will continue to offer education loans for graduate and professional students, in addition to education loans backed by the federal government.

In recent months, the ongoing credit crunch has prompted a number of lenders to drop out of the business of making student loans. Many student loan companies raise capital by selling auction rate securities, but in February, as fallout from the subprime crisis hit a boiling point, the market for auction securities seized up, making it extremely difficult, if not impossible, for lenders to secure financing for the loans.

Compounding the problem for student lenders is last year’s change to a federal law, which cut interest rates on government-backed loans and drastically reduced the subsidies that lenders make as a profit on student loans.

As of March 2008, approximately 100 lenders had suspended their government-backed student loan programs, with about 30 others leaving the private student lending business altogether. Â In May, the federal government took steps to bolster the student loan market with the Ensuring Continued Access To Student Loans Act, which was signed into law on May 7. Among other things, the Act allows the U.S. Department of Education to buy government-backed loans from student lenders, thereby providing them with additional capital to finance new loans.

Meanwhile, Wachovia potentially has an even bigger issue to face. In July, its securities division was raided by a team of regulators from more than five states as part of a probe into the company’s sales of auction-rate bonds. With news that Citigroup, Merrill Lynch and now UBS agreeing to settle claims of deceiving investors about the liquidity risks of the securities by buying back their auction rate investments, Wachovia could be inclined to follow suit.

At the same time, however, Wachovia is looking at long-term credit problems and losses connected to its high concentration of option adjustable-rate mortgages and other risky investments. Any move to buy back the illiquid auction securities it sold to individual investors could very well put its balance sheets in serious peril.

Our affiliation of securities lawyers is actively involved in advising individual and institutional investors in evaluating their legal options when confronted with subprime and other mortgage-related investment losses.