Wells Sees $150M ARS-Related Charge

Wells Fargo reached a settlement with regulators to resolve questions about its marketing of auction rate securities, agreeing to buy back roughly $1.4 billion of the securities from eligible investors.
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Wells Fargo

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said Wednesday it expects to take a $150 million after-tax charge this quarter to settle a lawsuit over auction-rate securities.

Wells agreed to pay $1.4 billion to ARS customers across the country as part of a settlement with California Attorney General Jerry Brown, and will pay another $500 million in fines and expenses. The company expects to recoup most of the settlement's cost as the securities are eventually redeemed.

"We have been working with ARS issuers since the auction rate market froze, and while there has been progress, redemptions by issuers have not occurred as fast as anyone would have hoped or predicted," Charles Daggs, CEO of Wells Fargo Investments, said in a statement.

Companies and municipalities issue ARS as long-term debt, whose interest rate tends to be reset frequently at dutch auctions. But when the ARS market froze up last year, banks refused to allow panicked customers to withdraw their ARS-backed funds. Individual investors, charities, small businesses and state pension funds were shocked by the response, since the securities had been marketed as nearly identical to cash. Lawsuits soon emerged.

Wells is one of the last major financial firms to settle with the government and customers since the market for ARS froze up in 2008. A host of competitors, including

Bank of America

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JPMorgan Chase

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Morgan Stanley

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Goldman Sachs

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Deutsche Bank

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Credit Suisse

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have all reached agreements with various regulators and some have also paid millions of dollars in fines.

Wells shares were up 1% at $28.67 in late afternoon trading.

-- Written by Lauren Tara LaCapra in New York