CHICAGO UBS AG UBSN.VX said on Saturday it has begun lowering the values of auction-rate securities held by its clients.
Auction-rate securities are long-term bonds that behave like short-term debt and have long been popular with conservative investors because of their tax-exempt status.
The move is the latest sign of how difficulties in the credit market are affecting even instruments previously seen as low risk.
Other banks and brokers are expected to follow and several are waiting for the end of the quarter on Monday, according to a Saturday story by the Wall Street Journal that first reported the UBS news.
UBS is expected to inform clients through their online statements shortly, the paper said. The markdowns, which the Swiss company began making on Friday, will range from a few percentage points to more than 20 percent, the Journal said, citing a UBS broker.
UBS spokeswoman Rohini Pragasam confirmed the decision, but declined to offer details.
"This is the right thing to do. It is in the best interests of our clients to provide them full transparency regarding their accounts," she said in an e-mail statement.
"Given current market dislocation this is the next logical step for any committed wealth manager," Pragasam added. "UBS is working closely with other market participants to restore liquidity to these markets as quickly as possible."
On Friday, Massachusetts' top securities regulator said his office was demanding information from three large investment houses, including UBS, as he deepens an investigation into the $330 billion auction-rate securities market.
William Galvin, the state's secretary of the Commonwealth, issued subpoenas to UBS, Merrill Lynch MER.N and Bank of America Investment Services (BAC.N) to determine whether they told investors about the potential risks of these investments, whose market sank in February.
Galvin, who has won big settlements from brokers and fund managers, began looking into the auction-rate securities market when it became the latest victim of the credit market crunch. His office is investigating whether auction-rate securities are appropriate for individual investors.
(Reporting by Ben Klayman; editing by Vicki Allen)