After months of regulatory pressure, Wall Street banks on Thursday took a U-turn, when they said they would compensate tens of thousands of investors who find themselves stuck in the frozen market for auction-rate securities.

Citigroup on Thursday agreed to buy $7.5bn worth of ARS from retail investors in the next three months while Merrill Lynch announced that it would buy back ARS it sold to investors starting next year. There are currently $12bn of such holdiings but Merrill said it expected there would be $10bn by the time it begins its buy-back. Meanwhile, UBS, the Swiss bank, was on Thursday night close to finalising the details of its own deal with regulators.