Aug. 11 (Bloomberg) -- Morgan Stanley, the second-biggest U.S. securities firm by market value, offered to buy back about $4.5 billion in auction-rate securities from retail clients, following a similar offer last week by Merrill Lynch & Co.

Morgan Stanley will begin to repurchase notes at par value no later than Sept. 30, the New York-based firm said today in a statement. New York Attorney General Andrew Cuomo earlier today sent letters to Morgan Stanley, JPMorgan Chase & Co. and Wachovia Corp. calling on the banks to begin ``immediate'' settlement talks to resolve probes into sales of the notes. Cuomo's office said Morgan Stanley's offer was insufficient.

``This is too little, too late, and our investigation into Morgan Stanley continues,'' Alex Detrick, a spokesman for Cuomo, said in an e-mail.

Regulators have been investigating how banks and Wall Street firms sold auction-rate securities before the $330 billion market collapsed in February. Morgan Stanley said it informed state and federal regulators about its plan to buy back the securities sold by the firm before Feb. 13.

The investments have been frozen in customer accounts since Wall Street firms backed away from the market in February, leading to claims by customers and investigations by the U.S. Securities and Exchange Commission and regulators in New York and Massachusetts.

Morgan Stanley's offer follows one by Merrill Lynch, which last week volunteered to buy back about $10 billion in auction- rate securities.

Citigroup Inc. has agreed to a $100 million fine and will repurchase about $7.3 billion of the debt under a settlement with U.S. and state regulators. UBS AG is paying a $150 million fine and will buy back $18.6 billion.

Cuomo

Morgan Stanley said today it told Cuomo's office, as well as the Securities and Exchange Commission and the state regulator in Illinois, about its plan. Last week, Morgan Stanley agreed to buy back $1.5 million in auction-rate securities from two municipalities in Massachusetts to settle claims there of improper sales.

Wachovia, the fourth-largest U.S. bank, said today that its second-quarter loss was bigger than reported in July because of costs to settle a probe of auction-rate securities sales. The Charlotte, North Carolina-based bank revised the loss to $9.11 billion, or $4.31 a share, from $8.86 billion, or $4.20, according to a regulatory filing.

Cuomo is demanding that banks create auction-rate securities buyback programs for retail customers, reimburse consumers forced to sell off their securities at ``below par'' prices and institute a claims-resolution mechanism.

To contact the reporters on this story: Christine Harper in New York at charper@bloomberg.net;

Last Updated: August 11, 2008 19:15 EDT