business

New York Attorney General Andrew Cuomo's auction-rate securities settlements with Wall Street banks show that the man who bills himself as the "people's lawyer" favors savers over shareholders.

The $50 billion of frozen debt that the financial firms -- including Merrill Lynch and Goldman Sachs Group, which settled Thursday -- agreed to repurchase covers about a quarter of the $200 billion Cuomo last week estimated as outstanding, and it's targeted at individuals, charities and small businesses.

Corporate finance officers, who also say they bought the securities after banks marketed them as safe alternatives to money-market investments, aren't being offered the same commitment. The best they got was a promise by Wachovia Corp. to buy securities, though maybe not until June.

"It's safe to say we're not pleased that what was marketed as highly rated investment-grade securities in our portfolio are illiquid and have lost value," ADC Telecommunications Inc. spokesman Michael Smith said.

The Eden Prairie-based maker of telephone-networking equipment, which owned $170 million of auction-rate securities in May, has written down the value of the debt by almost $100 million since Oct. 31.

Companies have taken markdowns totaling $2.1 billion on more than $32 billion of auction-rate holdings, according to a July 31 survey from Pluris Valuation Advisors of New York.

Besides ADC, other Twin Cities companies caught up in the mess include Best Buy Co. Inc., Lawson Software Inc., Lakes Entertainment Inc., Park Nicollet Health Services and NorthStar Education Finance.

The auction-rate market collapse may also lead corporate treasurers to abandon Wall Street, jeopardizing fees for bankers who arrange bond sales, mergers and public offerings.

Some finance managers are moving their cash to the trading desks of commercial banks as others shift to money-market funds or bank accounts, said Anthony Carfang, a partner at Treasury Strategies Inc., a Chicago-based treasury consulting firm.

"They're coming home to the trusted provider," he said.

Memphis-based Pinnacle Airlines reported a second-quarter loss of 64 cents per share in part because of an $8.7 million charge on $136 million of auction-rate securities backed by student loans.

In a conference call to discuss the results, Pinnacle Chief Financial Officer Peter Hunt said the settlements seem "to focus more on taking care of the small guys."

"It does seem like there are also some promises of assistance to larger companies over time," he said.

Auction-rate securities allowed municipalities, student loan agencies and closed-end mutual funds to sell long-term debt with lower short-term interest rates set at periodic auctions, typically held every seven, 28 or 35 days.

Investors have been stuck in the securities since the onetime $330 billion market collapsed in February.