Ambac Pursues Claim Against Major, Energizing Investors

Jacob Harper |

While the global economy has largely moved on from the damages inflicted during the 2008 meltdown, a number of major financial companies are still licking their wounds and looking for payback. One notable player still looking for recompense is Ambac Financial Group ($AMBC), who were hammered especially hard when they insured a significant number of toxic securities that went belly up. After declaring bankruptcy in 2010 and completely reorganizing, the revitalized insurer company is going after the banks that sold them on the securities. And it looks like they very well might have a case.

Two years ago Ambac went after JP Morgan Chase and Co. (JPM) to the tune of $941 million over fraud allegations. But that is small potatoes compared to news that surfaced on Feb 26 that claims that Ambac is pursuing a settlement of at least $2.5 billion against Bank of America (BAC) . And investors think they have a case.

In a complaint filed with the Supreme Court of New York, Ambac alleges that up to 97 percent of mortgages underwritten by Bank of America’s scandal-tarnished Countrywide division did not meet the underwriters' guidelines.  As such, the mortgages were far more unstable than Bank of America purported them to be when they packaged them for Ambac to insure.

In 2012, Ambac withdrew from litigation with Bank of America/Countrywide over Bank of America’s proposed $8.5 billion settlement with insurers. Now, two years after the first withdraw, four years after the near total collapse of Ambac, and a full six years after the mess first began, it seems Ambac might be finally getting back a large chunk of the capital they lost in the global financial crisis.

Or at least, investors think as much. Though no definitive settlement has been announced, shares  of Ambac climbed 9.94 percent by midday to hit $31.31 apiece.

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Companies

Symbol Name Price Change % Volume
JPM JP Morgan Chase 81.60 -0.19 -0.23 16,931,504
BAC Bank of America Corporation 21.23 -0.27 -1.26 128,455,719
AMBC Ambac Financial Group Inc. 24.37 -0.84 -3.31 275,945
BASFY BASF SE ADR (Sponsored) 86.33 0.25 0.29 25,946

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