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TD’s ARS Buy-Back Does Not Affect KFG Clients

TD LogoYou may have heard about TD’s announcement to buy back auction rate securities.  This doesn’t affect any KFG clients, as no KFG clients held any of these securities.

According to Reuters, “TD Ameritrade said it would take a one-time charge of between 5 cents and 10 cents per share in the current quarter, after agreeing to a settlement, announced Monday, with New York’s attorney general to buy back auction rate securities.

Management said on a conference call it could not predict the outcome of its offer to buy back between $400 million and $500 million of the securities — 90 percent of which it said was held by one “reputable” mutual fund firm that has been “the most active in the market at redeeming them.”

The buy-back estimate is more broad than the $456 million the office of New York Attorney General Andrew Cuomo said TD Ameritrade would return, following an investigation into illegal marketing and sales of the securities, which are long-term debts whose rates are set at periodic auctions.

Ultimately, TD Ameritrade expects the loss from the settlement to be immaterial, as ARS issuers refinance or redeem the securities, management said, stressing that TD Ameritrade’s role in the frozen ARS market was less important than dealers that agreed to much larger settlements.

“It is interesting that (TD Ameritrade) is taking a different tack from Charles Schwab and others that are farther down the line” from the ARS dealers, said Jason Ren, a Chicago-based equity analyst at Morningstar. “I suppose they have the liquidity on the balance sheet to stomach the blow.”

Charles Schwab Corp (SCHW.O), the No. 1 online broker, denied similar allegations from Cuomo’s office as “unfair” and “without merit” this week. “

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