Merrill Lynch (MER), pole-axed by the Citigroup (C) decision to buy back all of the auction-rate securities it has sold to individual investors, buckled and said it will purchase up to $12 billion of the paper on the same basis.

MER said that effective January 15, 2009, and through January 15, 2010, it will offer to buy at par auction rate securities sold by it to its retail clients.

The news further cripple’s Merrill’s balance sheet and reputation. The firm did say it does not expect its purchase of auction rate securities in 2009 through 2010 to have a materially adverse impact on its capital ratios, liquidity, or consolidated financial performance.

Based on management’s forecasts over the last six months, Wall St. will take that with a grain of salt.

Douglas A. McIntyre