Ambac Pursuing $2.5 Billion Claim Against Bank of America Corp

By Mani
Updated on

Bank of America Corp (NYSE:BAC) noting Ambac Financial Group, Inc. (NASDAQ:AMBC)’s damages claim in excess of $2.5 billion in a recent filing could be a positive for Ambac, notes BTIG Research.

Ambac’s emergence from bankruptcy

As reported earlier, Ambac Financial Group, Inc. (NASDAQ:AMBC) emerged from bankruptcy with court permission in March 2012 and is seeking to recover what it sees as unfair losses from its bond insurance market during the financial crisis. It was those dealings that made the insurer go bankrupt in the first place and they now seek recompense.

In 2012, Ambac Financial Group, Inc. (NASDAQ:AMBC) alleged that it is owed $200 million by JPMorgan Chase & Co. (NYSE:JPM) after fraudulent dealings by the former Bear Stearns resulted in the company losing that amount on just seven mortgage backed securities transactions from 2006. Its claim is that Bear Stearns fraudulently induced them to enter in those dealings and so is liable for the losses the company incurred.

AMBC’s flurry of claims

BTIG Research points out Ambac Financial Group, Inc. (NASDAQ:AMBC) is pursuing recovery of claims of over $2.5 billion against Bank of America Corp (NYSE:BAC), while it is also pursuing claims of at least $941 million against JPMorgan Chase & Co. (NYSE:JPM).

The insurer is also pursuing “hundreds of millions of dollars” in claims against First Franklin, the Merrill Lynch subsidiary under Bank of America Corp (NYSE:BAC)’s umbrella. Moreover, it also has claims against Nomura and Capital One.

During the company’s 3Q13 conference call in November, AMBC’s chief executive officer Diana Adams said that the insurer had already achieved settlement with total recoveries of $300 million. Moreover, it has six ongoing Representation & Warranty law suits, and that the insurer ‘continues to spare no effort’ to achieve additional recoveries of losses related to defective mortgages.

Ambac could be benefited from Bank of America disclosure

Mark Palmer of The BTIG Research believes Bank of America Corp (NYSE:BAC)’s recent noting in its 10-K filing is a very positive development for Ambac Financial Group, Inc. (NASDAQ:AMBC) as the insurer’s most recent amended complaint against BAC filed on May 28, 2013 stated that “as of June 30, 2011, the insurer had paid or accrued claims exceeding $1 billion in the aggregate”.

The BTIG Research report also points out that it is important to note that the insurer as of September 30 had booked a gross RMBS subrogation of $2.371 billion, implying about $2.37 billion of R&W recoveries are essentially baked into Ambac Financial Group, Inc. (NASDAQ:AMBC)’s book value and any recoveries above that number are not.

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