This is going to come as a very rude awakening to many investors.
One of the world’s biggest brokers is about to force its clients to take a haircut on a type of securities that investors had believed to be safe as cash.
UBS AG began on Friday to lower the values of so-called auction-rate securities held by its clients, a move that will be a jolt to customers who had been told they were investing in a “cash alternative.” The move is yet another way that the credit crunch that began with subprime mortgages has spread to unexpected places and upended conventional wisdom about the financial system.
The Swiss bank appears to be the first major firm to take this action and is expected to inform clients via their online statements shortly. The markdowns, which will be made using an internal computer model, will range from a few percentage points to more than 20%, a UBS broker said.