The Royal Bank of Canada has agreed to a settlement with the U.S. Securities and Exchange Commission which will see the bank buy back up to US$850 million in auction rate securities it sold to American investors.
The bank will but the securities at par value, from individual investors, charities with RBC account balances below $25 million, and small institutions and businesses with RBC accounts holding $10 million or less. To qualify, the investors must have purchased the securities prior to Feb. 11, 2008.
The settlement stems from RBC’s claim at the time of sale that the securities were both safe and liquid. About 85% of the securities were AAA-rated.
The offer to repurchase the securities extends to about 2,200 clients. The bank must begin the buy-back no later than Dec. 15, 2008, and continue the offer for at least six months.
The offer applies to all auction rate securities for which auctions are not operating at the time of the offer. Qualifying investors who sold their auction rate securities below par after Feb. 11, will be offered the difference.
RBC must also work with issuers and other interested parties to provide liquidity for institutional investors not covered by the repurchase offer.
The bank estimates the impact on fourth quarter earning to total about $30 million on a pre-tax basis, based on the difference between current value and par value. RBC has also agreed to pay a penalty of $9.8 million to the New York Attorney General’s office and the state securities commissioners associated with the North American Securities Administrators Association.
The affected clients were in the bank’s wealth management and capital markets divisions, as well as from JB Hanauer & Co. and Ferris, Baker Watts, Inc., two firms recently acquired by RBC.
 | Filed by Steven Lamb, Advisor.ca, steven.lamb@advisor.rogers.com |