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Financial institution of America to pay $1.84B to settle final Countrywide case


Oct 7, 2022

Financial institution of America pays $1.84 billion to bond insurer Ambac Monetary Group to settle the final of a long-standing string of lawsuits tied to residential mortgage-backed securities born from the 2008 monetary disaster, the businesses introduced Friday.

The financial institution will incur a $354 million third-quarter pretax expense from the settlement, to be reported at earnings Oct. 17, it stated in a securities submitting.

Ambac had sought roughly $3 billion in damages in a number of claims.

“Ambac could be very happy to have reached this settlement with Financial institution of America,” Claude LeBlanc, Ambac’s CEO, stated in an announcement. The corporate expects to see a $390 million windfall in its third- and fourth-quarter earnings after its subsidiary repays greater than $1.42 billion in debt that had been used to pay the claims and fund operations.

Ambac, between 2004 and 2006, insured securities backed by loans underwritten by Countrywide Monetary, which Financial institution of America purchased in 2008. Ambac claimed 80% of the loans failed to fulfill correct underwriting requirements or in any other case violated insurance coverage agreements — thus, passing the chance onto the insurer. Additional, Ambac stated Financial institution of America did not repurchase the loans as required.

Financial institution of America has already paid greater than $50 billion to resolve regulatory investigations and courtroom battles sprouting from the Countrywide deal. 

An legal professional for Ambac, Michael Carlinsky, stated final month throughout opening arguments in a case towards Financial institution of America that Countrywide Monetary was the “worst of the worst” in underwriting securities backed by unhealthy loans previous to the disaster, and that the corporate “ran a manufacturing unit the place it actually churned out billions and billions of {dollars} in unhealthy mortgage loans.” Friday’s settlement ends that trial.

Although Financial institution of America’s crisis-era RMBS complications are over, Ambac has but to settle its RMBS claims towards Nomura for fraud and breach of contract claims.

“There are additionally a lot of RMBS circumstances remaining introduced by RMBS trustees towards the likes of Credit score Suisse, Nomura and some others although Credit score Suisse and Nomura have essentially the most remaining publicity in these we expect,” Bloomberg Intelligence Senior Litigation Analyst Elliott Stein stated in an e-mail to Banking Dive. 

Stein stated he views the Ambac-Financial institution of America settlement nearly as good for the insurer, “however not nice,” noting that the restoration it obtained with the settlement was a notably smaller proportion than the RMBS settlement MBIA obtained towards Credit score Suisse in 2021. 

“We predict Ambac’s decrease restoration proportion mirrored a choice by New York’s excessive courtroom this previous March favorable to Credit score Suisse and that helps defendant banks in these circumstances,” Stein stated. “That call will possible have an effect on the opposite remaining RMBS circumstances too, giving the defendant banks some negotiating leverage to scale back anticipated settlement quantities.”

Financial institution of America, in the meantime, has been on the hook for a slew of penalties this 12 months. The Workplace of the Comptroller of the Foreign money and the Client Monetary Safety Bureau hit it with a one-two punch — $125 million and $100 million fines respectively — in July for mistakenly freezing pandemic profit funds. The financial institution has additionally agreed to pay the Securities and Change Fee (SEC) and the Commodity Futures Buying and selling Fee (CFTC) $225 million for failing to observe using unauthorized messaging apps.

Financial institution of America was amongst 11 banks fined a complete of $1.8 billion final month for what regulators referred to as “pervasive off-channel communication.”

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