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Morgan Stanley's Auction Rate Securites Buyback: Too Little, Too Late

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Investors in auction rate securities got some relief when UBS and Citi said they would buy back those bought by retail investors and charities. Merrill followed suit, although its buy back would be delayed until next year. But when Morgan Stanley made a similar buy back offer yesterday, the New York Attorney General's office characterized the offer as "too little, too late."
"Our investigation into Morgan Stanley continues," a spokesman for Attorney General Andrew Cuomo said.
It was not immediately clear what about Morgan Stanley's offer to settle with regulators and investors failed to satisfy Cuomo, although perhaps Cuomo rejected plans to delay the buyback until as late as September 30th. It may be that Cuomo plans to demand an immediate buyback. Merrill's offer is also said to be under review by Cuomo. There has been some speculation that both Merrill and Morgan hope to use the delay to pressure issuers to redeem the securities, reducing their costs in any buy back.
Another possibility is the Cuomo will require Morgan and Merrill to reimburse customers who sold the securities at a discount from par. Citigroup's offer included this provision, while Morgan's and Merrill's did not.
Earlier Monday, Cuomo sent a letter to Morgan Stanley, JPMorgan Chase and Wachovia, requesting the banks "immediate talks" to relieve investors. Wachovia is expected to announce a deal as early as today.

Bank Offers to Buy Back $4.5 Billion in Securities