INSTANT VIEW: U.S. authorities reach ARS deal with Citigroup

NEW YORK (Reuters) - Citigroup Inc. has agreed to buy back more than $7 billion of illiquid auction-rate securities from investors by November 5 and pay $100 million in penalties, according to a settlement with New York Attorney General Andrew Cuomo and the U.S. Securities and Exchange Commission announced on Thursday.

In a separate statement, the SEC said it is continuing its investigation into the ARS matter.

KEY POINTS: * The repurchase agreement applies to Citigroup's retail customers, charities and small-to-mid-sized businesses. * The reimbursements will go to more than 40,000 customers nationwide.

COMMENTS:

PAUL MATUS, PORTFOLIO MANAGER, SMITH AFFILIATED CAPITAL

CORP., NEW YORK:

"The retail people will at least get their par back. Everyone is going to be forced to settle with retail investors."

"This is going to hurt the dealers. They have to buy the stuff back and either take some loss on them or restructure them."

"It does make it more expensive to borrow on the front end. It's going to be hard to revive this market. Issuers are being forced out the curve with their borrowing. That puts more supply on the back end than the front end."

TIM MCGREGOR, DIRECTOR, MUNICIPAL FIXED INCOME, NORTHERN

TRUST, CHICAGO:

"I guess probably this is the start of the solution to the problem," as other banks likely will follow suit. "This is going to have an effect in our world strategically...The money you'd put to work in auction rate is not the money you'd typically put in stocks, it's a different (risk) category, which points more toward municipals. If everybody gets all their auction rate (debt) all of a sudden, they're going to need something to spend it on, other than gas."

"...It'll be interesting to see what they go into, the yield curve is so steep, you should see a pretty good flow...They may extend out the yield curve."

Asked if other auction rate issuers now might be more inclined not to restructure their debt, he replied: "The ones that are out there are the ones with low yields. Yields and low and the auctions are failing (so) those issuers aren't necessarily in hurry to restructure. They're probably happy with a low rate. From the issuer standpoint, they don't really care if Citi holds them (the auction rate debt) or XYZ company."

CECILIA GONDOR, EXECUTIVE VICE PRESIDENT, THOMAS J HERZFELD  Continued...