Ambac Settles With Bank of America for $1.84 Billion; Shares Soar
October 07 2022 - 8:39AM
Dow Jones News
By Dean Seal
Ambac Financial Group Inc. and Bank of America Corp. have
resolved longstanding litigation related to residential
mortgage-backed securities with a $1.84 billion settlement, sending
Ambac's shares soaring.
Ambac said Friday that the companies agreed to resolve claims
that residential mortgage-backed securities it insured prior to the
financial crisis were backed by loans that had been underwritten
with substandard origination practices by the now-defunct
Countrywide Financial, which Bank of America purchased in 2008.
The settlement exceeds the amount of subrogation recovery logged
on Ambac's most recent financial statements, and the company said
it expects to record a gain of $390 million with the agreement.
The insurer reported $1.48 billion in gross subrogation recovery
related to the residential mortgage-backed securities litigation,
$1.38 billion of which was tied to the Bank of America case.
A portion of the gain will be recognized on Ambac's third
quarter financial statement, with the rest following in the fourth
quarter, it said.
As part of the deal, Ambac said its Ambac Assurance Corp.
subsidiary will repay more than $1.42 billion in notes.
In premarket trading, Ambac shares climbed more than 23% to
$15.82.
Bank of America said in a securities filing that Ambac had been
seeking more than $3 billion in damages and that the banking giant
has previously accrued for certain amounts of the settlement
payment.
As a result of the settlement, Bank of America said it expects
to incur a pretax expense of $354 million in the third quarter,
which will cut earnings by 3 cents a share.
Bank of America shares were up slightly at $31.62 in premarket
trading.
Write to Dean Seal at dean.seal@wsj.com
(END) Dow Jones Newswires
October 07, 2022 08:24 ET (12:24 GMT)
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