UBS to buy back debt securities

By Jason Szep

BOSTON (Reuters) - Swiss bank UBS (UBSN.VX) agreed on Friday to buy back $19.4 billion (10 billion pounds) of debt securities whose value collapsed during the global financial crisis and to pay $150 million to settle charges it misled investors.

The settlement with Massachusetts, New York and federal regulators came a day after Citigroup Inc (C.N) and Merrill Lynch MER.N announced they would buy back almost $20 billion of the so-called auction-rate securities between them.

UBS and other banks had marketed the securities as safe and liquid as cash, but those who bought them have been unable to access their money since the $330 billion market collapsed in February, freezing the assets, as the credit crunch worsened.

Signaling a possible deepening in the legal fallout, the Bank of New York Mellon (BK.N) said one of its units was under investigation by U.S. regulators over the securities.

A number of other institutions were also under investigation, North American Securities Administrators Association President Karen Tyler told a news conference. She declined to identify them, but urged banks to "step up and do the right thing for their investors."

Massachusetts Secretary of State William Galvin said problems in the arcane auction-rate securities market affected investors nationwide and likely damaged the U.S economy.

"This was not a mutual mistake by financial services companies. This was a deliberate effort to ensnare consumers with great damage," Massachusetts Secretary of State William Galvin told Reuters in an interview.

"It's obvious in the case of UBS, and we have internal documents that prove this, that they were well aware of the problems in the marketplace, that they manipulated them."