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Wall Street: Firms pay up to end a scandal

Citigroup, Merrill Lynch, and UBS agreed last week to end “one of the messiest Wall Street scandals in years,” said Liz Rappaport and Randall Smith in The Wall Street Journal. Settling complaints brought by New York Attorney General Andrew Cuomo and other state regulators, the firms agreed to repurchase $36.7 billion in auction-rate securities that had been sold to individual investors. Auction-rate securities allowed companies, municipalities, and other issuers to borrow long-term at low short-term rates. The rates were reset at periodic auctions, at which investors could also redeem their securities. But the auction market fell apart when Citi, Merrill, UBS, and other firms, anxious to conserve capital, refused to bid. Thousands of investors, who had been told the securities were as safe and liquid as cash, were stuck with bonds they couldn’t sell.

The settlements “end a six-month nightmare for investors,” said David Nicklaus in the St. Louis Post-Dispatch. E-mails unearthed by investigators reveal that Merrill and other firms stepped up their marketing of the securities, even though they “knew how shaky the auction-rate market had become.” Burned investors may never “trust a broker again.”

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Transportation: GE to exit railroad business

GATX this week bid $3 billion for General Electric’s railcar-leasing business, said Maria Woehr in TheDeal.com. GE has been trying for months to sell its railcar division, but negotiations “have been slowly chugging in an uphill battle against tight credit markets and lack of buyers.” It’s easy to see why GATX, which controls one of the world’s largest fleets of railcars, would want to buy GE’s operation. Returns on railcar leases can top 15 percent a year, and with the price of scrap metal rising, railcars themselves are increasingly valuable.

Waste disposal: Waste Management bids on a rival

Waste Management has decided the best defense is a good offense, said Christopher Hinton in MarketWatch.com. The company this week bid $37 a share for rival Republic Services. Waste Management wants to buy Republic to prevent it from acquiring Allied Waste Industries. To ease investors’ concerns that antitrust regulators would seek to block the Republic acquisition, Waste Management said it would add “an interest component” to its bid “if the deal were delayed by antitrust clearance.”

Ethanol: The EPA won’t back down

The Environmental Protection Agency last week refused to suspend its requirement that 9 billion gallons of corn-based ethanol be added to the nation’s fuel supply, said Juliet Eilperin in The Washington Post. “An unusual coalition” of environmentalists and oil companies had requested the suspension, arguing that “the increase in corn production is hurting wildlife habitat and consumers while failing to cut greenhouse-gas emissions.” The EPA said the ethanol requirement didn’t cause “severe economic harm.”

Food safety: Nebraska Beef issues second recall

“For the second time this summer,” Nebraska Beef this week recalled ground beef that may be tainted with E. coli, said Lia Hardin in the Seattle Post-Intelligencer. The Food and Drug Administration demanded the recall of 1.2 million pounds of beef after it was linked to “at least 31 cases of E. coli–related illnesses” in the U.S. and Canada. The latest recall follows a June 30 recall of 5.3 million pounds of beef from the same Nebraska packing plant.