Merrill Lynch just announced that they will buy at par the auction rate securities they sold to retail clients, following the precedent set this morning by Citigroup's announcement.
In an interesting twist, Merrill isn't buying the auction rate securities immediately. They will begin the buy back on January 15, 2009 and continue through January 15, 2010. We suspect that Merrill hopes it will be able to convince issuers to redeem some of the auction rate securities, reducing the cost of the program to Merrill.
Earlier today CNBC's Charlie Gasparino reported that Merrill's brokers had been pressuring management to make this move.
Full press release from Merrill after the jump.
Merrill Lynch To Buy Auction Rate Securities Positions From Its Retail Clients
NEW YORK, August 7, 2008 - Merrill Lynch (NYSE: MER) today announced that effective January 15, 2009 and through January 15, 2010 it will offer to buy at par auction rate securities sold by it to its retail clients.
"Our clients have been caught in an unprecedented liquidity crisis," said John A. Thain, chairman and chief executive officer. "We are solving it by giving them the option of selling their positions to us."
"We have made tremendous strides in working with issuers during the last five months; over 40% of our clients' auction rate holdings have been liquidated," said president of Global Wealth Management Robert J. McCann. "But we are not satisfied with this pace, even though the marketplace continues to move forward and we expect issuer redemptions to accelerate with time. With this offer, we continue to put the interests of our clients first."
Merrill Lynch acknowledges the important role being played by the SEC, New York State Attorney General Cuomo, the Massachusetts Securities Division and the North American Securities Administrators Association on these issues. Merrill Lynch also will continue to work closely with and encourage auction rate securities issuers in their restructuring efforts to resolve the outstanding liquidity issues for all of Merrill Lynch's retail and institutional clients.
Merrill Lynch's action creates liquidity for more than 30,000 clients who hold municipal, closed-end funds and student loan auction rate securities. Merrill Lynch retail clients currently hold an estimated $12 billion in auction rate securities, which Merrill Lynch expects to be reduced to under $10 billion by January 2009 as a result of announced and anticipated issuer redemptions. In addition to its offer to buy auction rate securities, Merrill Lynch will continue to actively provide clients with attractive loan arrangements to give them needed liquidity.
Under the plan announced today, retail clients of Merrill Lynch would have a year, beginning on January 15, 2009 and ending January 15, 2010, in which to sell Merrill Lynch their auction rate securities, if they so wish. Retail clients include individuals, charitable institutions and many family-owned and small businesses. Auction rate securities that are the subject of pending issuer redemptions or successful auctions will not be eligible for purchase by Merrill Lynch.
The auction rate securities that are owned by Merrill Lynch's clients are predominantly rated AAA and are not credit-impaired. Merrill Lynch does not expect its purchase of auction rate securities in 2009 through 2010 to have a materially adverse impact on its capital ratios, liquidity, or consolidated financial performance.