August 8, 2008 / 3:31 PM / 11 years ago

ARS settlements to result in $4 bln of writedowns - BofA

Aug 8 (Reuters) - Banc of America Securities said settlements related to auction-rate securities (ARS) may provide an end to one of the credit crunch’s chapters, and expects total potential additional writedowns for settlements across all ARS dealers of about $4 billion.

The auction-rate market froze early this year in the wake of a credit crunch that destroyed the top ratings of some insurance companies that insured much of the debt.

Auctions, which were held periodically to reset the interest rates on these securities, failed — leaving issuers facing maximum default rates that they had agreed to pay.

On Thursday Citigroup (C.N) and Merrill Lynch MER.N said they would buy back billions of dollars of illiquid auction-rate securities from retail clients, and Citigroup agreed to pay a $100 million fine to settle charges it fraudulently misled investors about the debt’s risk.

Both companies reported limited impact of such actions on capital ratios, Banc of America analyst Jeffrey Rosenberg said in a debt research note dated Aug. 7. (Reporting by Sweta Singh in Bangalore; Editing by Pratish Narayanan)

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