August 22, 2008 / 12:40 PM / 9 years ago

RBC seeking ARS deal with U.S. regulators: report

TORONTO (Reuters) - Royal Bank of Canada RY.TO is in settlement talks with U.S. regulators over its role in the troubled U.S. auction-rate securities market, the Globe and Mail newspaper said on Friday.

The move may result in the bank buying back some of the investments from retail clients, the paper said.

It said an internal memo to brokers confirmed that RBC it has been in talks with New York Attorney-General Andrew Cuomo.

Calls to RBC were not immediately returned.

Cuomo and other state regulators have been bearing down on dealers that sold the complex securities to investors before the market seized up this spring.

The newspaper said RBC’s exposure to the market is smaller than that of bigger players. It cited an unnamed source who estimated the RBC has about $1 billion of auction-rate securities held by individuals and charities.

RBC has not yet repurchased these securities because the structure of any buyback depends on regulatory approval, the newspaper cited the note as saying.

“RBC is committed to addressing the problem of retail clients who hold auction-rate securities,” the letter said. “We have expressed our willingness to work with regulators to develop and implement a program to provide liquidity to certain individual clients, and small businesses and charities.”

This week, Merrill Lynch & Co Inc MER.N, Deutsche Bank DBKGn.DE and Goldman Sachs GS.N were the latest to settle with states led by Cuomo, agreeing to buy back billions of dollars of auction-rate securities.

The banks also agreed to pay $162 million in fines.

Dealers have been accused of understating the debt’s risk, telling investors that auction-rate securities were safe, cash equivalent that would return more than money-market instruments and could be easily sold.

The securities offered interest rates that reset periodically in auctions, but those auctions have been failing with the notes turning into tough to sell, longer-term debt worth less than face value.

($1=$1.05 Canadian)

Reporting by Jennifer Kwan; editing by Janet Guttsman

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