Merrill Lynch & Co. late Thursday announced that beginning Jan. 15, 2009, it will offer to buy at par auction-rate securities it sold to retail clients, including individuals, charities, and small businesses.

Merrill estimates these clients hold an estimated $12 million in ARS, although it expects that number to be reduced to $10 billion by the beginning of the offer due to announced and anticipated issuer redemptions.

“Our clients have been caught in an unprecedented liquidity crisis,” John Thain, Merrill’s chairman and chief executive officer, said in a statement. “We are solving it by giving them the option of selling their positions to us.”

The firm said it has already liquidated over 40% of its clients’ auction-rate holdings.

Under the new plan, clients will have one year to sell their ARS back to Merrill. In the meantime, the firm will “continue to actively provide clients with attractive loan arrangements to give them needed liquidity.”

The investment bank said it will continue to work closely with issuers in restructuring efforts to resolve outstanding liquidity issues for its clients. The offer to buy ARS will not extend to issues subject to pending issuer redemptions or successful auctions.

Merrill said it does not expect the plan will have an adverse impact on its capital ratios, liquidity, or consolidated financial performance because most of the issues owned by its clients were triple-A rated and not credit impaired.

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